Dwelling units to be built under the affordable rental housing complex (ARHC) scheme will comprise single bedrooms up to 30 square metres (sqm), double bedrooms up to 60 sqm and dormitory beds of up to 10 sqm carpet areas each.
The initial rent of ARHCs will be fixed by local authorities based on a survey of surrounding areas, operational guidelines issued by the Ministry of Housing and Urban Development stated.
To address the issue of affordable rental housing for urban migrants/poor through private/public bodies, the government has designed two models. The first model involves ARHCs on government funded vacant houses and the second involves construction, operation and maintenance of units by public or private entities on their own available vacant land.
Under the second model, private or public developers are free to construct a mix of single/double bedroom and dormitories (4/6 units). However, to ensure that such complexes are used for urban migrant/poor of economically weaker sections (EWS)/lower income group (LIG) categories and not misused for any other purposes, a maximum ceiling of 33 percent in double bedroom form in any project has been provisioned.
All projects under ARHCs shall be exclusively used for rental housing purposes for a minimum period of 25 years.
A dedicated escrow account will have to be opened for all financial transaction and the income accrued as rent will be maintained in a separate account by the concerned concessionaire or entity.
The Union Cabinet on July 8 had approved the ARHC scheme for urban migrants employed in industries and the service sector and in manufacturing sector close to their workplace in industrial as well as in non-formal urban sectors.
Government funded vacant houses
Under the first model, existing government funded vacant houses would be converted into ARHCs through a concession agreement for 25 years. Post that, those units in livable condition would be transferred to urban local bodies.
The rent will be enhanced biennially by 8 percent, subject to maximum increase of 20 percent in aggregate, over a period of five years, effective from the date of signing the contract. Same mechanism shall be followed over the entire concession period of 25 years, the operational guidelines said.
Concessionaire and tenants (including institutions) will sign a rent agreement abiding to applicable rules and regulations. Tenants will abide by the contract terms and vacate premises without any dispute. In the event a tenant is found indulging in any unlawful activity and fails to abide by the terms and conditions of the rent agreement, the concessionaire will have eviction rights during the contract period and his decision will be considered as final.
ARHCs could also be constructed on large portion of available vacant lands lying unutilised with industries, trade associations, manufacturing companies, educational or health Institutions, development authorities, housing boards, central/ state public sector undertakings (PSUs) and other such entities
The concessionaire will be selected through a transparent process by urban local bodies (ULBs). While bidding, affordable rental amount and period of concession shall be considered as fixed parameters and selection of concessionaire will be made on the basis of the bidder offering maximum positive premium to ULBs. In case of negative premium, bidder requiring lowest negative premium will be selected and will be eligible for Viability Gap Funding (VGF), the guidelines said.
The incentives proposed for concessionaire through the government include exemption of Income Tax on any profits and gains derived from operation of ARHCs on similar lines as that of ‘affordable housing’ under section 80-IBA of Income Tax Act, 1961.
These would also be exempted from Goods & Service Tax (GST) on any profits and gains derived from operation of ARHCs, at par with rental services of residential premises.
Project finance/loan at lower interest rate would be offered through concessional window under the affordable housing fund (AHF) of housing finance companies (HFCs) and priority sector lending (PSL) by commercials banks.
Construction, operation and maintenance of ARHCs by public or private entities on their own available vacant land
Under this model, ARHCs will be constructed, operated and maintained by entities or private developers on their own vacant land for 25 years. The entity can partner or associate with other entities for land arrangement, project financing, implementation and operation and maintenance.
ARHCs constructed through this model will consist of a mix of dwelling units up to 30/60 sqm carpet area each and dormitory of 4/6 beds up to 10 sqm carpet area per bed, including all common facilities. The minimum size of dwelling units (single/double bedroom) and dormitories shall conform to the requirement of National Building Code (NBC) and state or local authority norms.
A single project of ARHCs shall have at least 40 dwelling units (double bedroom/ single bedroom) or equivalent dormitory beds (1 single bedroom unit of up to 30 sqm carpet area is considered equivalent to three dormitory beds).
States/Union Territories/ULBs will have to follow a single window system for approval of design/ drawings and other statutory approvals within 30 days, after which the proposed project will be considered as deemed approved for construction.
Initial affordable rent will be fixed by the entity as per a local survey. The rent will be enhanced biennially by 8 percent, subject to maximum increase of 20 percent in aggregate, over a period of five years, effective from the date of signing the contract.
The entity may use ARHCs to provide accommodation to their own workers/ labours as well as serve the requirement of neighbouring entities.
The entity should preferably use innovative emerging construction systems which help in faster construction, better structural and functional performance. To offset this cost impact, a technology innovation grant (TIG) has been provisioned, the guidelines said.
States or Union Territories may also provide 50 percent additional floor area ratio (FAR)/floor space index (FSI) free of cost through necessary changes in local planning and development control regulations (DCR). An entity can rent or sell permissible commercial built-up area as per local regulations, it said.
The ARHC scheme will be applicable for consideration and funding till the Pradhan Mantri Awas Yojana (Urban) mission period, which is March 2022.
Challenges still remainReal estate experts told Moneycontrol that while this is a 'good initiative', there are issues that need to be addressed before it can have a tangible impact on the real estate market. The first is the cost at which the government would offers its vacant land parcels to be developed by the concessionaire.
The second issue is to do with the rental yield that is likely to accrue to the developer. In India, rental yields vary between 1.5 percent and 3 percent.
While the first model for development of ARHCs on government land may be viable, there may be challenges under the second model in following the PPP approach as the intended beneficiaries – migrants, street vendors and the poor – may not benefit, an expert said.
The second issue is to do with the rental yield that is likely to accrue to the developer. In India, rental yields vary between 1.5 percent and 3 percent per annum.
Experts also point out that while the first model for development of ARHCs on government land may be viable, there may be challenges under the second model following the PPP approach as the intended beneficiary – migrants, street vendors and the poor may not benefit.
“The reward equation and the monthly rent numbers do not stack up and even the operational guidelines suggesting a 14 percent IRR may not be exciting enough for a private developer or investor,” says Anckur Srivasttava of GenReal Advisers.
“Based on the operational guidelines, it seems that RBI would need to stipulate a separate category of infrastructure/real estate loans for ARHCs. The development models cited in the guideline annexure suggest a high loan-to-value ratio, low construction finance interest rates (around 8 percent) and 20-year repayment terms with only land being contributed as the private developer’s equity. Currently, we don’t see banks/financial institutions offering such terms for real estate or even priority sector affordable housing loans,” he said.
Pradeep Aggarwal, founder and Chairman, Signature Global Group, whose company is into affordable housing projects, said a commitment from an institutional partner like Life Insurance Corporation (LIC) is a must as cheaper funding can only come from such agencies.
“Unless such institutions do not have a stake in such projects, the developers may not be willing to participate in this scheme. The second issue is to do with the time that states would take to design these policies, lest these remain mere guidelines.
“Also, state governments will have to decide on reasonable rents. No migrant labour will be able to pay up to Rs 6,000 per month as rent. Viability is still a concern,” he added.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.
