Measures to attract the private real estate sector under Pradhan Mantri Awas Yojana (PMAY)
With the increasing demand and tremendous scope for affordable housing segment of the real estate, this segment will be the top runner in the next five years. This goes along with our Honourable Prime Minister Narendra Modi ji’s vision of ‘Housing for All by 2022’ which is a national objective where we can expect more favourable provisions towards affordable housing and Economically Weaker Section / Lower Income Group Housing.
Reforms and policy initiatives of the Centre as well as some State Governments have encouraged private developers to evince interest to launch projects in the affordable segment in the recent times. But the participation forms a minuscule percentage.
The Pradhan Mantri Awas Yojana (PMAY) has been designed envisaging a big role for private sector,but no private sector participation has been enlisted under PMAY and private developers remain reluctant in the scheme.
If we analyse, there are several bottle necks and reasons that restrict the private developers. The bottlenecks are: the high gestation period of housing projects, long and not that much transparent approval process, expensive capital, non-availability of land with infrastructure and connectivity, spiralling land and construction costs, high fees and taxes as well as unfavourable development norms – needless to say about ‘wafer thin margin’ private developers get through this business segment. Thus first and foremost is that we have to make these Housing projects attractive and a viable proposition for private developers and to kindle their interest to take up.
It must be appreciated that the private real estate sector faces considerable headwinds today. Rising cost pressures and a difficult regulatory scenario are among the primary concern areas that hold back private developer’s participation in a big way.
Coming to the solutions, I would prioritize them as under:
Solution 1: Approval process should be streamlined
Currently, it takes nearly two to three years for a developer to commence construction after having entered into an agreement for land purchase. The real estate developers today are required to pass the approvals through 150 tables in about 40 departments of central and state governments and municipal Corporations. Every day delay means –it is a drain on profitability for the developers.
There must be transparent digital online approval process taking only minimum time for approval and putting an end to unethical practices.Digital approval mechanism, better co-ordination among the multiple authorities in dealing with various permissions/approvals will encourage private real estate developers to invest in the affordable housing segment.
States can be asked to frame by -laws in a transparent manner for every division / region of a city and bring out checklist for approval compliance and the approval process shall be made online thus eliminating intermediaries, avoidable unethical payments and expenditure. Stricter penal provisions shall be clamped within a time limit of 10 years for any wrong reporting /compliance if it comes to notice in future.
Solution 2: Infrastructure needs to be provided
Availability of land with infrastructure like Road, water and sewerage is a big drag for private developers.It will be appreciated that providing infrastructure like road water and sewerage is the obligation of the state and may have to be met out of the Cess and tax collected from the project.If the State can take care of this arena, there shall be more private players evincing interest to take up the projects.
Solution 3: ‘Big bang measures’ are necessary
We need measures similar to one brought in 2000 by the then PM Shri Vajpayee ji by introducing Section 80 IB (10) of the Income Tax Act which aimed at promoting constructions of housing projects. We can undoubtedly say that this was a break through provision introduced bringing in a big real estate revolution particularly in augmenting the housing supply.
To recall, the years 2000-2004 was the turnaround period in the real estate sector and in housing supply – with large number of private players entering and augmenting the housing stock/housing supply. But this good progress with increased housing supply was short lived. The subsequent Government brought in MAT. This move by the next Government dis-incentivized many of the players and again there was dip in housing supply.
The kind of measures that was introduced in 2000 will attract private players to participate in the national mission like PMAY in a big way.