Rajiv Awas Yojana: builders not too keen on rental housing

Rajiv Awas Yojana: builders not too keen on rental housing

New Delhi: The Rajiv Awas Yojana (RAY) announced in the 2009 budget is one of the United Progressive Alliance government’s initiatives aimed at improving living conditions for the urban poor through the construction of housing for the so-called economically weaker sections (EWS), a measure aimed at reining in the relentless spread of slums across India’s urban landscape.

But private builders aren’t too keen on the idea, according to senior officials at the ministry of housing and poverty alleviation, who requested anonymity.

According to ministry officials there has so far been no focus in India on such rental housing.

“This kind of transit housing will prevent squatter settlements. It is important that the government constructs such accommodation as a bridge before people can find more permanent accommodation," said one of the officials cited above.

Nine pilot RAY projects have been approved as public private partnerships (PPP) with a funding ratio of 50:50 between the developer and the state government in Andhra Pradesh, Madhya Pradesh and Rajasthan at a total cost of Rs470 crore. The government plans to develop 8,000 EWS housing units through these projects.

The government has made it mandatory going forward that all housing projects in the EWS category under RAY will have a minimum 25% of the residential stock dedicated to rental housing.

“The government will put thrust on new projects as a part of their preventive strategy to tackle housing shortage but so far no developers have come forward to bid for such a project," said the official cited above.

There are other obstacles in the way of rental housing becoming popular with developers said Rakhi Mehra, co-founder, Micro Home Solutions (MHS), a profit-making organization working to promote EWS housing. They would rather build and sell than rent.

“Most developers are not thrilled by such projects since the returns on selling a property are much higher than on renting it," Mehra said.

In a typical EWS category housing project, the government allows a part of it to be developed as commercial space along with the rental housing. The project’s success depends on who will manage it and set the eligibility criteria for those seeking to rent homes, she added.

Developers blame poor incentives and low returns for the lack of enthusiasm.

“Such projects are taken up under the purview of state development authorities, which are not comfortable sharing more incentives," said Manoj Goyal, senior vice-president, Raheja Developers Ltd, a New Delhi-based real estate firm. “Moreover, authorities should not invite bids for such projects, as the tendering process increases the cost of the project while there is poor return on the final product."

Goyal’s company is already building such a project in Delhi under the Delhi Development Authority’s EWS scheme.

According to government estimates, rapid population growth and increasing urbanization are exerting tremendous pressure on the available land and infrastructure in urban areas. At the beginning of the 11th Five-Year Plan period (2007-12) the housing shortage in urban areas was around 24.71 million units, out of which 99% was in the EWS and low income group (LIG) categories, according to these estimates.

“Developing an organized rental market is a challenge because of restrictive government policies, very low rental yields, restrictive rent control Acts and lack of incentives and opportunity," said another developer, who requested anonymity.


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