Affordable Housing Not 'Infrastructure' For Banks Yet; Misses Out On Benefits

Days after it was reported that the government had built only eight per cent of homes against the target it has set to provide homes for all by 2022 in urban India, the government issued a clarification. In a press note, it said 3.5 lakh homes had been built while work on another 18.47 units had started as against the target of 40.65 lakh homes sanctioned since launch of the Pradhan Mantri Awas Yojana-Urban (PMAY-U).

The government plans to build 1.2 crore houses for the urban poor by 2022.

Considering the target, even the revised numbers show that despite all the song and dance around the subject, it has become near impossible for the government to meet the ambitious target it has set for itself, the generosity shown in fund allocation notwithstanding. The outlay for PMAY-Urban was increased by Rs 25,000 crore in extra Budgetary resources in the financial year 2018-2019. In the Budget, the scheme was already allocated Rs 6,505 crore. The government has to in fact goad states and other development agencies to utilise the funds allocated under the scheme. A prime reason behind that the flop show of this much-talked about scheme is the impervious approach shown by real estate developers. They certainly have a reason to be unhappy.

Over a year after the government gave the segment the infrastructure status (that happened in the Budget 2017-18), earning loud applause for the step, developers consider it nothing but an academic exercise—in reality no profits are to be reaped through this change in status. In case a developer involves himself in developing an affordable-housing project, he would certainly not find the banks treating him any differently. Banks have yet to make changes and offer loans such projects at reduced rates---these loans are not yet treated as loans to infrastructure.

Since infrastructure projects are low-risk bets for financial institutions, banks offer them credit at lower rates when compared to other real estate projects.

Also, unlike the real estate sector where financial institutions can lend only 10 per cent of their balance-sheet, there is no such cap for infrastructure segment.  Insistence on developers’ part that the rate of the Goods and Services Tax (GST) for affordable housing be brought down from the existing 12 per cent (this is the in-effect rate; the actual rate is 18 per cent) has also bore no fruit so far. Since affordable has a lot to do with money — it would be better to replace the words a lot with everything, on second thoughts — the government might find it hard to get on board without private help.