India is undergoing a rapid urbanization now. This requires expansion of urban amenities. A major deficit is housing among urban population. National Urban Housing and Habitat Policy (NUHHP), 2007 has set the objective of Affordable Housing for All as a key focus. The government has set 2022 as the target year to realize this objective by making specific initiatives for the promotion of urban housing.
The target group of affordable housing in urban areas
The Technical Group On Urban Housing Shortage divided urban households in terms of per capita income into Economically Weaker Sections (EWS), Lower-Income Groups (LIG), Middle Income Group and Higher Income Group while assessing housing shortages. According to the Technical Group, 99.9% of the EWS doesn’t have a house. The MHUPA defines EWS as the households whose annual per capita income is less than Rs 3 lakh.
The Technical Group estimated that 88% of the urban housing shortages are coming from Economically Weaker Sections (EWS). Around 11% for of shortages are from Lower-Income Groups (LIG). The main constraint in urban areas is the lack of availability of land. Lack of access to finance for low income people, rising cost of construction, low interest by private developers are some other adverse factors in urban affordable housing. Realizing the urban housing requirements, the government has launched Pradhan Mantri Awaas Yojana in 2015 to provide housing for all by 2022 in urban areas. Budget 2016 and 2017 also initiated several sound measures to promote urban housing. All these attempts show that providing affordable housing is now a development priority.
One major defect in housing segment is that the private sector concentrate on the higher income groups to develop houses. Hence to attract their investment and participation, incentives should be given to them. The last two budgets (2016 and 2017) have given high priority to this objective. Measures like 100% tax incentives on affordable housing projects, conferring of infrastructure status to affordable housing, reduction of long term capital gains tax period to two years etc. will encourage the participation of private sector companies into affordable housing. Under the Union Budget 2012–13, External Commercial Borrowing (ECB) has been allowed for affordable and low-cost housing.
Pradhan Mantri Awaas Yojana (PMAY)
Pradhan Mantri Awaas Yojana (Urban) launched in 2015 is the anchor scheme that makes direct intervention for creation of affordable houses in urban areas. The urban oreintation of the scheme is because of severe lack of houses for urban poor especially among the Economically Weaker Sections. Under PMAY, 2 crore houses for the urban poor will be constructed by 2022—at the rate of 30 lakh houses per year. Objective is to construct affordable Pucca Houses with water facility, toilet facility, 24X7 electricity supply and access.
According to the MHUPA, around 18 million people are living in slums and nearly 2million is to enter homeless category in near future. Hence there is a demand for 20 million (2crore) urban houses by 2022. To meet this demand, the PMAY will be implemented during 2015-2022 by providing central assistance to Urban Local Bodies (ULBs) and other implementing agencies through States/UTs. All statutory towns as per Census 2011 and towns notified subsequently would be eligible for coverage under the Mission.
The scheme targets urban poor including Economically weaker sections (EWS) and low income groups (LIG) in urban areas. Centre will provide a financial assistance of Rs 2 trillion. This Mission has following four components.
(a) Slum rehabilitation for Slum Dwellers: with participation of private developers using land as a resource;
(b) Credit Linked Subsidy: Under this component, weaker economical section will be given subsidy on home loans taken by Urban Poor (EWS/LIG). This subsidy will be available for the loans availed for new construction and addition of rooms(kitchen, toilet etc.). This subsidy will only be available for loan amounts upto Rs 12 lakhs.
(c) Affordable Housing through Partnerships: Under this component, financial assistance to EWS (Economically Weaker Section) houses when its built-in partnership with public/private players.
(d) Beneficiary led Individual house construction or Enhancements: This assistance will be given to either construct new houses or enhance the existing houses on their own by EWS categories. A central assistance of Rs. 1.5 lakh will be given under this component.
Features of the scheme:
- The scheme will be implemented as a Centrally Sponsored Scheme. But the credit linked subsidy component will be implemented as a Central Sector Scheme.
- The scheme will cover the entire urban area consisting of 4041 statutory towns with initial focus on 500 Class I cities and it will be implemented in three phases.
- Interest subsidy: the government will provide an interest subsidy of 6.5% on housing loans availed by the beneficiaries for a period of 15 years from the start of a loan.
- State participation in slum development: A State Government would have flexibility in deploying this slum rehabilitation grant to any slum rehabilitation project taken for development using land as a resource for providing houses to slum dwellers.
- Central assistance at the rate of Rs.1.5 lakh per house for EWS category will be provided under the Affordable Housing in Partnership and Beneficiary-led individual house construction or enhancement. State Government or their para statals like Housing Boards can take up project of affordable housing to avail the Central Government grant.
- A Technology Sub-mission under the Mission would be set up to facilitate adoption of modern, innovative and green technologies and building material for faster and quality construction of houses. The Technology Sub-Mission will also facilitate preparation and adoption of layout designs and building plans suitable for various geo-climatic zones. It will also assist States/Cities in deploying disaster resistant and environment friendly technologies.
- For the allocation of ground floors in any housing scheme under PMAY, preference will be given to differently abled and older persons.
- The houses given under this scheme will be owned by females or jointly with males.
Budget 2017 and affordable housing
(a) Infrastructure status for affordable housing: the budget has given infrastructure status for affordable housing. This will allow additional private players to participate, by making investment. Similarly, fund injection through External Commercial Borrowings may go up.
(b) Rural housing allocation: The Budget propose to complete 1 crore houses by 2019 for the houseless and those living in kutcha houses. For this, an increase in allocation to Pradhan Mantri Awaas Yojana – Gramin from Rs 15,000 crores in BE 2016-17 to Rs 23,000 crores in 2017-18 has been made in the budget.
(c) The National Housing Bank will refinance individual housing loans worth Rs20,000 crore in 2017-18.
(d) Tax concession treatment for affordable housing construction -the criteria changed to carpet area: The budget 2016 has provided a 100 per cent deduction for profits (of construction companies/assessee) on the construction of affordable houses in flats for a period from 2016 to 2019 (MAT applies). In the new budget (2017), the FM makes a switch to carpet area instead of built up area besides raising the period for construction to five years. First, instead of built up area of 30 and 60 sq.mtr., the carpet area of 30 and 60 sq.mtr. will be counted. The 30 sq.mtr. limit will apply only in case of municipal limits of 4 metropolitan cities while for the rest of the country including in the peripheral areas of metros, limit of 60 sq.mtr. will apply. In order to be eligible, the scheme was to be completed in 5 years after commencement in contrast to the previous 3-year requirement.
(e) Long term capital gains tax benefits on housing which could be availed after 3 years, has been brought down to 2 years. This will attract more private sector players into affordable housing construction sector. A reduction of long term capital gains tax period will help builders to reduce the tax burden while selling houses.