PPP model to boost affordable housing under Pradhan Mantri Awas Yojana: Colliers Research

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Published: June 21, 2017 11:32:20 AM

The PPP model has a potential to make affordable housing possible, if implemented well without much of the complexities.

Utilisation of government land to develop affordable housing is a good option for private developers.

Noida: In line with the agenda of achieving ‘Housing for All by 2022’ the government has given an infrastructure status to the affordable housing in the Budget 2017. Although the Central government’s ambitious scheme Pradhan Mantri Awas Yojana (PMAY) was launched in 2015 to develop affordable housing through various models primarily subsidized by the government itself, but since its launch, the government is observing a very dull response from private developers. Even after having given the infrastructure status to affordable housing, the prospects for developers remain unattractive due to high land cost and availability of land in city’s municipal limits. Besides this, rising cost of construction also makes it financially unattractive for many developers. The new Public Private Partnership (PPP) policy for affordable housing in India is drafted to minimise risks like land, financing and capital investments, maintenance and recovery of the capital invested.

“Since the infrastructure status is given to affordable housing, the concept has started creating a buzz among developers and they are looking forward to participating and trying to figure out the feasibility of such projects. So far, the major challenge in affordable housing is land availability. The PPP model has a potential to make affordable housing possible if implemented well without much of the complexities”, said Surabhi Arora, Senior Associate Director, Research, Colliers International India.

The government has developed the policy to encourage participation of private players to develop affordable housing through financial & non-financial supports, cross subsidized models. Proactive participation of private players in these PPP models should reduce the burden on the government and the developers. As the land is the costliest commodity in real estate, the government has come up with alternatives for PPP model in affordable housing such as private land that can be developed for intensive utilisation, such as higher FSI or in exchange for permission to build high-end housing. The policy is drafted keeping in mind that the developer will not have to bear the land cost and will invest in cost of construction which can be recovered with additional profit through models. These models are formulated and differ on aspects like land ownership, type of development mix, type of recovery, maintenance of houses and allotment of houses.

Though there are some similar types of models like rental housing, cross subsidy to developer available in master plans and development plans of cities across major cities in India. State housing boards can also develop on government’s land using the government’s fund without any involvement of private players. Developers may consider utilising upfront cost and annuity to develop affordable housing on government land where their exposure to risk is very low. Annuity based and capital grant based models may work in the current scenario where developers are bound by RERA to execute and hand over the project in given timeline.

As per Colliers Research, these alternatives are based on cross subsiding and such kind of provisions are already available in development control norms of various cities in India. So far, developers find it unviable to develop affordable housing in such schemes as there are risks involved like unpredictable market sentiments and sluggish sales of apartments. In Mumbai, MMRDA had discontinued its rental housing policy due to developers’ complaints about the defaulters who were not paying rents.

Redevelopment of underutilised land such as land encroached by slum dwellers has development potential but similar guidelines are available in the Slum Area (Improvement and Clearance) Act and slum free city plan of action schemes.

Colliers Research further believes that utilisation of government land to develop affordable housing is a good option for private developers where there are no complications in land titles and investment to buy land is involved. The success of this policy will therefore depend on the proper implementation, fast approvals, and transparency in the system.

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