Self-reliance and innovation through affordable rental housing
The world is facing the pandemic of Covid-19 and India has been at the forefront of the strategic response in the fight against it. A major impact of this crisis was the lockdown of industrial, manufacturing and construction sectors in the country. This naturally resulted in large scale reverse migration of urban migrants and poor swarmed back to the rural areas in the security of their homes. The Ministry of Housing and Urban Affairs (MoHUA) rose to the occasion by initiating Affordable Rental Housing Complexes (ARHCs) scheme to address the issue of housing for the workforce through a comprehensive policy push to enable both the Public and Private Entities for their proactive participation in the scheme. The Union Cabinet approved Affordable Rental Housing Complexes (ARHCs) as a sub-scheme of the ongoing Pradhan Mantri Awas Yojana– Urban (PMAY-U). The scheme is designed on the lines of achieving the avowed goals of an AatmaNirbhar (Self-Reliant) Bharat. It also encourages the entrepreneurial initiatives in this sector and promotes organised rental business in the country. I shall discuss the background and features of the scheme and thereafter discuss the way ARHC projects offer viable and promising investment opportunity with manifold benefits for the Entities, as well as the society.
Contextually speaking, in a typical urban setting the Urban Migrants/Poor are the bulwark of the workforce and critical to the construction sector and economic activities of the cities. Paradoxically however, these migrants stay in poor quality accommodations, slums, informal and peripheral settlements to cut down on their living costs. In the event of Covid-19 and the consequent lockdown, the economic vulnerability of urban migrants came to the fore. It is noteworthy that such persons and families who had the security of a home, did not have to face this situation and they could pursue their vocation after lockdown.
It is very rightly said that “every dark cloud has a silver lining”. Against the Covid-19 backdrop, the Ministry worked out a pragmatic and sustainable paradigm for promoting housing projects for urban migrants/poor. The innovative design for rental homes through multiple approaches including the role of Public/Private Entities is first such pro-poor initiative in the country involving private and public entities which underlines the commitment and clear vision of the Government.
The Scheme:
For clearer understanding, first, let us look at ARHCs through the prism of 5W&H model.
What: ARHC is a sub-scheme under PMAY(U) which seeks to provide dignified living with necessary civic amenities to urban migrants/ poor, close to their workplace at affordable rate.
Why: There has been a large-scale reverse migration of urban migrants/ poor due to Covid-19. Non availability of affordable housing close to workplace adversely impacts productivity. There is requirement of affordable rental housing rather than ownership. Importantly, ARHCs addresses the requirements of this vital economic productive force by providing a pragmatic option of “renting a house” rather than forcing an ownership-based solution despite constraints or requirements. This marks a decisive and strategic shift from ownership-based intervention to rental based social housing scheme corrects historical negligence towards urban migrants and poor. ARHCs offers a clear choice to take up a rental unit as per their requirements closest to their working area.
Who: The beneficiaries of ARHCs will be varied groups of urban migrants/ poor from EWS/ LIG categories including industrial & construction workers, migrants working with market/trade associations, educational/health institutions, hospitality sector, long-term tourists/visitors, students or any other category as deemed fit by the States/UTs. The scheme initially stands to bring immediate relief to nearly three lakh beneficiaries comprising of the urban workforce. A wide segment of the population has been included in the illustrative list and the states can decide on the eligible categories depending on local conditions. This intervention as such is not an omnibus solution for all rental issues and is focussed to address migrant’s requirements.
Where: ARHCs will be implemented in all Statutory Towns, Notified Planning Areas, Development Authorities, Special Area Development Authorities, Industrial Development Authorities and any other area as notified by State/ UT Govts. The States/UTs can also notify such areas as they deem fit for expanding the reach of ARHCs.
When (approval period): ARHCs will be considered for approval till PMAY (U) Mission period i.e. up to March 2022. However, projects approved until March 2022 shall have continued support until completion.
How: The Scheme will be implemented through two models. In Model 1, Existing Government funded (Central & State) vacant houses will be Utilized by converting them into ARHCs through Public Private Partnership or by Public Agencies; and operating them for a concession period of 25 years. In Model 2, Public/Private Entities will Construct, Operate and Maintain ARHCs on their own available vacant land for a period of 25 years. In order to secure the interest of intended beneficiaries, ARHCs projects will have a mix of single bedroom houses with living area, kitchen, toilet and bathroom (up to 30 sqm of carpet area) and dormitories (up to 10 sqm of carpet area). Thus, higher percentage of single unit and dormitory is encouraged under ARHCs. However, the scheme also provisions for construction of a maximum of one third of dwelling units (33%) of double bedroom with living area, kitchen, toilet and bathroom (up to 60 sqm carpet area) in a given project to address the familial requirements.
Impetus to Business Innovation
ARHCs will induce investment and promote entrepreneurship in rental housing sector, thus, creating a new business ecosystem in urban areas. The policy initiative has come up after series of consultations with stakeholders like State Governments, NAREDCO/CREDAI, Financial Intuitions, Planners, Architects amongst others.
Here’s how:
Capital Inflow at lower interest rate
Creation of ARHCs will promote attractive investments. Government of India has extended the benefit of project finance Credit facility at lower interest rate through concessional window Inclusion of ARHC under Harmonized Master List (HML) of Infrastructure Sub-sectors coupled with RBI permitting issue of long term bonds by banks for financing of Infrastructure and affordable housing will facilitate long term project loan requirements for affordable housing in India at lower interest rate. Further, Entities can avail loans at lower rates from banks under Priority Sector Lending (PSL) Window or from Housing Finance Companies (HFCs) under Affordable housing fund (AHF) at lower interest rate. Refinance under AHF will be available to eligible institutions from National Housing Bank.
As a result of this capital infusion, the Internal Rate of Returns (IRR) projected at about 12-14% will become lucrative business opportunity for Private as well as Public Entities
Utilization of vacant land as a resource
Finding suitable land in the city near the centres where migrants work/study is a big challenge. Availability of land in the public sector (Central/State PSUs etc.) is often fraught with problems and competing priorities. Also, a large portion of vacant land is available unutilized with private sector which has not been able to utilize it judiciously because of restrictions posed under local planning norms and regulations.
There is a need to unlock the available land with public agencies as well as private bodies. Policy push through ARHCs allows flexibility in Land Use by Entities where part of it can be used for rental purpose and rest for commercial use. Thus, ARHCs will lead to value capture on the land asset and the rate of return derived will make business profitable and secured.
Policy Incentives
As part of the policy push for business innovation in rental housing, incentives and benefits are being extended to the Entities such as concessional project finance to Entities through concessional window under AHF; exemption in Income Tax & GST on any profits and gains derived from operation of ARHCs; provision of Use Permission changes for houses on vacant land and free 50% additional FAR/FSI through necessary changes in local planning and Development Control Regulations; trunk infrastructure up to the project site by States/UTs; municipal charges at par with residential property and Single window and time bound (within 30days) approval of all ARHC projects.
Further, in order to promote business innovation through use of innovative and alternate construction technologies, a Technology Innovation Grant (TIG) of Rs 600 crore has been provisioned under the Scheme.
Entrepreneurship and Investment in Rental Housing
Through this initiative, Government has created an entrepreneurial opportunity in a largely unregulated, disorganised sector. This will propel further investment in the housing sector. The scheme has been designed to provide flexibility for entrepreneurs or Entities to opt from two available models of implementation which will ensure the continuity of business and assurance of sustained supply of productive capital at work site for eventual economic gain.
The Government is aware of the limitations of ownership model of housing, as not everybody needs or desires to own a house in their city of work. This holds especially true for those who have migrated as they may already have a house or land in their respective place of domicile. The new initiative of ARHCs, besides addressing the issues of health, hygiene and productivity of migrants and their families, will also prevent unorganized spatial proliferation of slums.
Expected Benefits:
ARHCs model will provide an ambient ecosystem for technology led innovation, growth and a sustainable rental market in the country. Amidst sentiments of a global economic slowdown and some legacy failures of real estate sector, an estimated 12-14 percent projected IRR will indeed make the ARHCs financially viable. This is possible because of the jacketing of clear and easy financing availability out of the PSL and the TIG. These will also reduce the project time lines which eventually translates into better economic model for the entrepreneur and investor and the beneficiary.
It will promote responsible entrepreneurship and fulfilment of ethical duty towards the ‘less privileged’ and also give them increased purchasing power. By providing rental housing solution for people who work for national growth and productivity, ARHCs will provide great opportunity for Entities to act for the ‘greater common good’ and be involved in ‘National Duty’.
ARHC with innovative technologies will promote, green, cost efficient technologies and address climate resilience construction. It will also promote skilling in innovative technologies.
For our cities to prosper, it is imperative that housing for different strata of society are looked at holistically and benefits of planning and development are horizontally spread. Recognising the housing needs of the migrants/poor who form significant workforce in the informal sectors and support the growth of cities, the scheme of ARHCs is a forward-looking step of the Government. It looks at inclusive growth from that prism and is a precursor to achieving the vision of AatmaNirbhar Bharat’. With the States/UTs taking interest, ARHCs promises to promote ethos of cooperative federalism and partnership of Private Entities and Public sector together for a genuine social good.