Government Proposed New PPP Policy For Affordable Housing Segment
The government has proposed a new PPP Policy (public-private partnership) for the affordable housing segment. Eight different models have been proposed under two schemes with Central financial assistance. Firstly, to provide Rs 2.5 lakh as an upfront payment to the developer for constructing houses on private land under CLSS (credit linked subsidy scheme).
Secondly, to provide Rs 1.5 lakh per house to be built on the private land, in case beneficiaries do not wish to take a bank loan. Other options involve innovative ways of incentivizing private developers through a direct benefit transfer (DBT) model, mixed development cross-subsidizing scheme, annuity-based subsidizing housing, direct relationship ownership housing, and direct relationship rental housing. The idea is to push the real estate sector, post the announcement by the Central government, to accord an infrastructure status to the sector.
Is new PPP policy best way forward to make Housing for All a reality?
It is a good beginning, which will trigger banks to lend more over a long period of time, and in turn, will attract private sector interest. This may also drive developers to look for opportunities in the market. However, the recent slowdown after demonetization and huge inventories piling up, developers are interested in joining the government’s affordable housing scheme in order to keep themselves afloat in the sector.
Therefore, any interest in response to a distressed call for short-term viability will do no good either for the government or the developer. It may be a quick fix, but there seems to be no long-term strategy from the developer’s perspective.
Big developers may leverage the government scheme as they have a huge portfolio to balance the shortfall, if any and be in the business for long term. On the other hand, small developers will definitely be out of the game with no room to ascertain their position. Either they will enter into joint venture with big developers and be content with small margins or be completely left out of the game.
Also, the challenge may come from foreign developers with deep pockets trying to foray into the market, if the sector is opened to them. They may exploit the situation and grab a considerable market share. The government has to be very cautious while allowing foreign developers to enter the sector.
Private operators will always want to work as engineering, procurement and construction (EPC) contractor or turnkey developer as it suits their business strategy. EPC model will provide them with a safe passage to enter and exit. They would like to enter the segment with government support, build housing projects and exit after making the return on their investment.
The concept of affordable housing should have a large perspective of social impact to the society, which requires a long-term strategy and futuristic blueprint to succeed. There is no short-term solution for a national-level target to be achieved. The value chain consists of various stakeholders, and it is very difficult to unite them under a common objective.
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