Affordable Housing: Is PPP model best way forward to make Housing for All a reality?

Published: May 18, 2018 5:02 PM

The government has proposed a new PPP policy for the affordable housing segment. However, can this make the government's Housing for All by 2022 mission a reality?

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The Modi-led government has taken a few steps towards making ‘Housing for All’ a reality by 2022. Under this initiative, the erstwhile Indira Awas Yojana was renamed as Pradhan Mantri Awas Yojana Grameen, and another scheme Pradhan Mantri Awas Yojana Urban was launched in 2015. A total of 50 million houses are targeted to be built by 2022, while the government’s budgetary support has risen from Rs 11,600 crore in FY16 to Rs 29,043 crore in FY18.

The government has proposed a new PPP (public-private partnership) policy for the affordable housing segment. Eight different models have been proposed under two schemes with Central financial assistance. Firstly, to provide Rs 2.5 lakh as upfront payment to the developer for constructing houses on private land under CLSS (credit linked subsidy scheme). Secondly, to provide Rs 1.5 lakh per house to be built on the private land, in case beneficiaries do not wish to take a bank loan. Other options involve innovative ways of incentivizing private developers through a direct benefit transfer (DBT) model, mixed development cross subsidizing scheme, annuity-based subsidizing housing, direct relationship ownership housing, and direct relationship rental housing. The idea is to push the real estate sector, post the announcement by the Central government, to accord an infrastructure status to the sector.

It is a good beginning, which will trigger banks to lend more over a long period of time, and in turn will attract private sector interest. This may also drive developers to look for opportunities in the market. However, the recent slowdown after demonetization and huge inventories piling up, developers are interested in joining the government’s affordable housing scheme in order to keep themselves afloat in the sector. Therefore, any interest in response to a distressed call for short term viability will do no good either for the government or the developer. It may be a quick fix, but there seems to be no long-term strategy from the developer’s perspective.

Big developers may leverage the government scheme as they have a huge portfolio to balance the shortfall, if any and be in the business for long term. On the other hand, small developers will definitely be out of the game with no room to ascertain their position. Either they will enter into joint venture with big developers and be content with small margins or be completely left out of the game. Also, the challenge may come from foreign developers with deep pockets trying to foray into the market, if the sector is opened to them. They may exploit the situation and grab a considerable market share. The government has to be very cautious while allowing foreign developers to enter the sector.

Private operators will always want to work as engineering, procurement and construction (EPC) contractor or turnkey developer as it suits their business strategy. EPC model will provide them a safe passage to enter and exit. They would like to enter the segment with government support, build housing projects and exit after making return on their investment.

The government needs to change the whole perspective in developing affordable housing from stand-alone to lifecycle approach. It should not only focus on developing houses, but also examine the matter in totality, i.e. creating an eco-system where the operations and maintenance would be integrated in the system for the complete lifecycle of the project, say around 30 to 40 years. This approach will help the government design various frameworks to attract private funding in terms of PPP mode of development and assure funding for long term from the financial institutions. For instance, the rental housing, providing Viability Gap Funding (VGF), channelizing Indian multinational CSR fund towards this cause, etc.

The concept of affordable housing should have a large prospective of social impact to the society, which requires a long-term strategy and futuristic blueprint to succeed. There is no short-term solution for a national-level target to be achieved. The value chain consists of various stakeholders, and it is very difficult to unite them under a common objective. But this dream for a new India must be realized, even if it means sacrificing a little for achieving the larger goal.

(By Amit Chawla, Senior Associate Director, Valuation & Advisory Services, Colliers International India)

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