Although analysts and real estate observers are positive about new Minister for Housing and Urban Poverty Alleviation, Ajay Maken’s intent to help economically weaker sections (EWS) and low income group (LIG), the experts also sounded a word of caution calling for regular scrutiny of government schemes and solid planning.
Maken, who took charge on 30 October, launched the Credit Risk Guarantee Fund (CRGF) scheme for low-income housing. Under this scheme the State Bank of India, Central Bank of India and HDFC entered into an agreement with the Credit Guarantee Trust—which will be managed by the National Housing Bank—to set up a trust of Rs 1,000 crore through which the government can provide credit risk guarantee to lending institutions against housing loans of upto Rs 5 lakh for new borrowers falling under the EWS/LIG categories.
While the government took the first big step by making easy collateral free finance available to the urban poor, there are rough edges in the initiatives that the government needs to look into, even as it goes ahead and implements them. It needs to properly communicate the meaning and definition of EWS and LIG to the participating institutions and people at large to remove any ambiguity and make sure that only those eligible are given the benefit of the fund.
Amitabh Kundu, chairman, technical group on Urban Housing Shortage Report 2012-17, told Firstpost that the minister’s announcements were a very positive indication because it signifies that “we have moved to focussing on the other end of the housing market, which is the EWS and LIG” but not without a warning.
“Any general housing loan subsidy is not going to work, unless it is targeted. To make a subsidy effective, the private sector needs to be given incentives to build low cost housing, but the government must have checks and balances to monitor the implementation and adherence to the requirements for which it got the incentives,” Kundu told Firstpost.
He also warned that trying to make builders change their mindset may be an uphill task, unless strict regulation and penalties for non-compliance are laid down.
“Making sure developers have a 35 percent reservation for these sections of society is going to be a very challenging task, even though it is a positive step. But I would like to see what the specifics of the minister’s plans are,” Kundu said. “We have had so much of positive talk for the last 40 years, but implementation fails because the framework itself is very weak and without a robust framework, a general announcement is no good,” he added.
The minister also expressed his desire to implement housing reforms such as putting rules in place for private builders to reserve 35 percent of housing units in a project or 15 percent of the floor area ratio—whatever is higher—for the economically weaker sections of society.
“A considerable time and effort also needs to be spent in structuring the scheme in a manner by which maximum EWS and LIG groups are benefitted,” said founder and CEO of PropEquity, a Gurgaon-based real estate research firm, Samir Jasuja told Firspost. He also believed that incentivising lending institutions appropriately will enable wider propagation and benefit the scheme.
“This initiative can address the housing needs of the urban poor to a great extent and would provide an avenue for EWS/LIG segment to access the opportunity to own a house,” said Jasuja.
The fund, which will fulfill one of the basic necessities of a decent life—housing—will also aid EWG and LIG groups to receive loans without collateral/third party guarantee which is usually a key hurdle in a securing loan from a financing institution or a bank. This scheme will enable an EWS/LIG candidate to cross that hurdle.
Considering that EWS and LIG groups are able to service the debt, this will also prove to be a credibility statement for them in securing loans under various schemes and future loans.
The government would also do well to advise banks and financial institutions to make appraisal, documentation and sanction mechanisms easy and less cumbersome to increase the success rate of the scheme.
“There should be a single window clearance for all approvals and sanctions related to the scheme,” Jasuja said.
According to a government report, India faces a housing shortage of 18.78 million for the next five year plan from 2012 to 2017, most of which is in the EWS and LIG categories.
Ironically, as many as 11 million houses (or more than 50 percent of housing shortage)—which accounts for around 10 percent of the country’s housing stock—lies vacant, according to India’s Census of 2011.
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