The need of encouraging private real estate players to participate in Pradhan Mantri Awas Yojana!

By:B2B Desk 2017-02-28

Affordable housing has seen a tremendous demand as well as scope and it is expected that this segment of real estate will be a top runner in the coming 3-5 years. While our Prime Minister has promised ‘Housing For All by 2022,’ the segment is expecting a lot of favorable provisions. The recent reforms and policy initiatives of the Centre as well as the initiatives taken by a lot of state governments have encouraged private developers to evince interest in launching projects in the affordable segment. Though this percentage is negligible, but at least we have started taking some steps in the direction of providing housing for all!

Bottlenecks and reasons why private developers are reluctant towards PMAY: The Pradhan Mantri Awas Yojana has been designed envisaging a big role for the private sector, but still private sector is not showing a very active participation in the same. Some reasons that have been shared are: the long gestation period of housing projects, long and not so transparent approval process, expensive capital, non-availability of land with infrastructure and connectivity, spiraling land and construction costs, high fees and taxes as well as unfavorable development norms. On top of it, the private developers get very thin margin’ through this business segment! 

How can we make housing projects attractive for private developers’

Streamlining the approval process: A project approval currently requires approvals from around 40 departments. This includes approvals from the Central government, State governments and municipal corporations. The entire process takes 2-3 years for a developer to commence the construction. Digitization of approvals can save a lot of time and money as well as it will bring an end to unethical practices. It will also act as a better platform for connecting the multiple authorities and Real Estate professionals, thus encouraging private real estate developers to invest in the affordable housing segment. Every state can bring out a checklist for approval compliance. With the approval process made online, the intermediaries will be eliminated, which will further cut down unethical payments and expenditures. 

Proper infrastructure: Land plots with basic infrastructures like road, water, and sewerage etc. will attract a lot of private developers. If the government/State can provide this kind of infrastructure, the private developed interest will be automatically drawn towards them!

Learn from the past: The period between 2000-2004 was the biggest turnaround period in the real estate sector and in housing supply. The period has highest number of private players entering and augmenting the housing supply, but the decision of minimum alternate tax (MAT) disincentivized many players and again there was a dip in housing supply. We need to look back and introduce schemes and plans that encourage private players to participate in a national mission like PMAY in a big way.

Technology intervention: Technology interventions in construction can bridge the gap between time, efficiency and funding for many mass housing projects.

The convergence of government schemes like funds raised from the state governments, municipal debt, Real Estate Investment Trusts (REITs), infrastructure debt funds, and the PPP vehicle, etc. can secure a stable cash flow will ensure successful completion of the project. An integrated platform where private players and infrastructure service providers can merge and work collaboratively will help in achieving optimal results. Overall, the goal should be to create better housing standards and participation of the private sector. Housing for All and the Smart Cities Mission are two major flagship policies that have affected the demand and supply trends of residential real estate. As per the industry statistics, currently there is a shortage of 18.8 million homes, out of which 15 million are needed in the LIG (Low Income Group) category. The Housing for All mission gives benefits like tax rebates, monetary support, relaxed development regulations, discounted interest rates, etc. So funding and the incentives for developers and buyers are being taken care of, while the Smart Cities focuses on land availability and strengthening basic infrastructure facilities.

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