AFFORDABLE HOUSING – A profitable Investment and Lending Opportunity

One of the dreams of successive governments has been “Housing For All”. Over the years, the regulations for Investment Opportunities in the Affordable Housing Segment have been revised and liberalised, to promote Competitive Investment Opportunities.

With a target of “Housing For All by 2022”, the Current Government has further liberalised Investment Opportunities (including Foreign Investments) in Real Estate – Low cost Affordable Housing Segment, and announced 8 Public Private Partnership (PPP) models for boosting the Affordable Housing Segment.

There is a huge scope for Real Estate developers to venture into something profitable, while fulfilling a social cause. Many HNIs and Institutional Investors, both inland and foreign, have been exploring this segment as a potential investment destination, due to the relaxed regulations, and size of the market.

Here’s a quick look at the regulatory structure of the Affordable Housing Segment.

REGULATORS FOR FOREIGN INVESTMENTS IN REAL ESTATE:  Reserve Bank of India (RBI), Foreign Investment Promotion Board (FIPB), Department of Industrial Policy (DIPP), Securities Exchange Board of India (SEBI) – in case the securities are listed or offered to the Public.

REGULATORY ACT: Foreign Exchange Management Act, 1999 (FEMA)

MINISTRY: Ministry of Housing & Urban Affairs

CLASSIFICATION OF FOREIGN INVESTMENTS IN AFFORDABLE HOUSING: Existing market participants can raise Foreign Investment for the Affordable Housing Segment using any of the 5 below mentioned regimes:
1.       Foreign Direct Investment (FDI)
2.       Foreign Venture Capital Investment (FVCI)
3.       Foreign Portfolio Investment (FPI)
4.       External Commercial Borrowings (ECB)
5.       Non Resident Indian Investment (NRII)

Let us now look at the schemes and subsidies applicable for developers of affordable houses.

GOVERNMENT PROMOTED SCHEMES / SUBSIDIES FOR AFFORDABLE HOUSING DEVELOPERS:
The Central Government has recently launched 8 Public Private Partnership (PPP) models for boosting the Affordable Housing segment.

The first two models, based on private investment on private land are:
1.       Central Assistance of upto Rs. 2.50 lacs per house built by builders as Interest Subsidy on Bank Loans under Credit Linked Subsidy Component (CLSC) of Pradhan Mantri Awas Yojana (Urban).
2.       Central Assistance of upto Rs. 1.50 lacs per house built by builders, under Pradhan Mantri Awas Yojana (Urban), if Bank Loan is not taken.

The other six models, based on private investment in government lands are:
1.       DBT Model: Government land will be allocated based on the least cost of construction, private builders can design, build and transfer houses built on government lands to public authorities. Payments to builders will be made by the public authority based on the progress of project as per agreed upon milestones, and buyers will pay directly to the Government.
2.       Mixed- Development Cross –subsidized Housing: Government land will be allotted based on the number of affordable houses to be built on the plot offered to private builders, cross subsidizing this segment from revenues from high end house building or commercial development.
3.       Annuity-Based Subsidized Housing: Land allocation to builders is based on unit cost of construction. Builders will invest against deferred annuity payments by the Government.
4.       Annuity-cum-Capital Grant Based Affordable Housing: Besides annuity payments, builders may be paid a share of the project cost as upfront payment.
5.       Direct Relationship Ownership Housing: Public land will be allocated based on unit cost of construction. As against government mediated payments to builders and transfer of houses to beneficiaries in the above four models, under this option, promoters will directly deal with buyers and recover costs.  
6.       Direct Relationship Rental Housing: Recovery of the costs by builders is through rental incomes from the houses built on government lands. 

If you are a developer engaged in building Affordable Housing, wanting to raise funds through Debt / Equity, while also availing the benefits of the applicable Schemes and Subsidies, connect with us at support@msmemitra.com

Thank you for reading.

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With MSMEmitra.com, make an informed decision about the most suitable Financing Options available for your Business, and avail the benefits of the industry and need specific schemes and subsidies of the Central Government, applicable for your Business.

Disclaimer:
This write-up has been collated from various publicly available materials and secondary data, and MSMEmitra.com does not have any copyrights over the content, or guarantee its accuracy.

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