State Intervention – Financial Chronicle

Taking a leaf out of the central government's book, Maharashtra has envisaged an ambitious plan to provide 11 lakh houses in the Mumbai metropolitan region (MMR) and 8 lakh homes in rest of the state by 2022. It's a plan worth looking at.A draft of the state government's new housing policy and action plan, 2015, has proposed that unused and underutilised land resources of the state and state-owned organisations, such as Maharashtra Industrial Development Corporation, Mahasagar Dairy, urban local bodies (ULBs), the City and Industrial Development Corporation of Maharashtra (CIDCO), Maharashtra Housing and Area Development Authority (MHADA) and the Mumbai Metropolitan Regional Development Authority (MMRDA), municipal bodies, among others, be pooled together.

In a shift in stand since 2007, the new policy emphasises on the state government's interventionist role, as opposed to the earlier position, which backed the private sector to create affordable housing stock for the masses. "The government's role will be that of an interventionist, that is, to introduce supply periodically, and also that of a facilitator, putting in place the necessary regulatory framework to encourage supply from the private sector," the draft policy points out.

The state government has commissioned MHADA to conduct a city-wise survey to find out just how steep the housing shortage is. The survey will be completed in six months.

"The Maharashtra government's new housing policy may lead to utilisation of underutilised land resources of the state and state-owned authorities," Brotin Banerjee, managing director and CEO at Tata Housing Development Company told Financial Chronicle.

The policy says the key factor impacting affordability of housing is the cost of the land. The only way to reduce the burden of the price is to increase supply, with the government playing the role of a catalyst.

Other highlights:

  • Pooled land would be used to build houses for the economically weaker sections (EWS), low-income groups (LIG) and middle-income groups (MIG) in the ratio of 30, 30, and 30. The remaining land would be used to create open spaces, parks and recreation facilities.
  • The policy proposes reduction of stamp duty for affordable housing from the present 5 per cent of transaction value to 1 per cent, 2 per cent and 3 per cent for EWS, LIG and MIG houses respectively to enhance purchasing power of the buyers.
  • It has also proposed funding private developers from the corpus of Rs 1,000 crore to be created by the government.
  • Cooperative housing societies would be entitled to funding. The homebuyers, in such cases, would get possession by paying just 10 per cent of the flat cost, while the remaining 90 per cent would have to be paid by the end of 15 years. During this period, the developer would get the funds from the corpus. The interest, however, would have to be paid by the borrower for 15 years.
  • The other incentive for the private sector to participate in building affordable housing includes offering additional floor space index (FSI) to builders. FSI is the construction allowed on a given plot of land.
  • Private sector has the permission to redevelop dilapidated chawls (also known as cess buildings) and 105 MHADA colonies in Mumbai. Besides these, builders with 25 hectares of contiguous land parcel would be eligible to participate in township projects in MMR, covering eight municipal corporations, nine municipal councils and 1,000 villages.

Lalit Kumar Jain, CMD at Kumar Urban Development and former chairman at CREDAI, says the government would have to restrain itself from charging high premiums that make housing unaffordable. "Reduction in taxes, premiums, stamp duty and property taxes and simplification of approval process are key to success,'' he predicts.

However, he adds that the process of urban renewal will require the government to take residential societies and other clusters suggested for redevelopment into confidence to meet challenges that confront affordable housing.

Anuj Puri, chairman and country head at JLL India, international property consultants, says implementation of policy would make a difference. "At present, developers who have entered into affordable housing projects in Mumbai and Pune have had to launch their projects some distance away from the main city, as availability of land is limited near city centres," he points out.

Construction of infrastructure on the peripheries has to be provided by the developer, thereby reducing his profit margins, Puri explains. "If land is made available near city centres, developers will not have to spend on laying infrastructure, making such projects relatively more lucrative. State-owned land parcels are often located close to city-centres," he says.

Puri says both the demand and supply-side factors need the right triggers. On the demand front, a funding pool is planned on the lines of pension funds, whereby individuals can enroll and contribute every year. Upon completion of 10 years, the member gets to apply for MHADA homes on a preferential basis through a separate quota for housing fund members. Another demand-side trigger is the differential stamp duty applicable to the HIG, MIG and LIG segments, which helps the less fortunate strata of society, Puri states.

Likewise for the supply side, he says, "the same fund can be utilised for giving loans to housing societies for rebuilding, or to developers for constructing EWS/LIG housing, or to MHADA for acquiring new land parcels," he says.

Also, redevelopment of cessed buildings has provisions to influence the hitherto rigid Rent Control Act in a manner that rents paid by tenants in such buildings would be bought on par with market rates in three years (given certain riders for protection of weaker sections), explains Puri. This would free up several old properties, which are currently in dilapidated condition and can be made ready for redevelopment, he adds.

Some companies say the draft policy recognises the role to be played by the private sector. According to JC Sharma, vice chairman and managing director at Sobha Limited, "although the target is doable, it will require a huge effort from both government and private players. From the scalability point of view, constructing more than 5 million sq ft in the next seven years will require proactive support from all the stakeholders."

According to Om Ahuja, CEO-residential at Brigade Group, private sector developers, specially listed and reputed ones, have always contributed in multiple ways under the CSR but now under the proposed policy, it makes business sense in contributing to a social cause. "Multiple other initiatives like single-window clearance, avoidance of multiple NOC's and bringing in a housing regulator will make a difference. Currently in the absence of such important enablers, it becomes difficult for the government and the common man to differentiate credible and non-credible players," Ahuja said.

Vishal Nahar, director at XRBIA Developers, concurs, saying that though the policy is a step in the right direction, single window clearances are required to boost this sector. "Land is not the bottle neck of the housing industry, clearances and upfront costs involved are," he points out.

"This policy will only be successful with the government looking at the developer as an industrialist and partner in growth. Also, project loans needs to be given at priority rates and repayment period needs to be increased to 10 -15 years for large projects," Nahar suggests. Sanctioning costs (premiums and development charges) need to restructured and linked to sales of the project by way of loading on stamp duty, instead of being charged upfront, he points out.

According to Gaurav Shah, director, sales and marketing at Ravi Group, this housing policy means business of building 436 houses each day for 365 days, ie approximately 1.6 lakh houses in a year. "Is the government willing to fast track the pace of giving clearances and approvals? Moreover, is the government ready with the additional infrastructure that would be needed to sustain these 1.1 million families?"

Shah says to achieve its mission, the government would need to come up with an optimum mix of budgetary support and policies to strengthen investor sentiments and make housing projects, especially in the affordable segment, financially accessible to people.

Manju Yagnik, vice chairperson at Nahar Group, points out that land being at a premium, the government plans to create land banks for affordable housing and utilise unused land resources of the state and state-owned organisations was a good move. "However, its success will depend on quick implementation, faster cle­arances for which the government will have to overhaul existing rules and regulations, which even call for legal reforms," she explains. In a sense, that would be stating the obvious.