Union Budget 2023–24: Here is what India’s Rental Housing Programme expects from FM

(Representational image)

Neeraj Bansal

As India awaits the announcement of the Union Budget 2023–24, the real estate sector hopes to see some of its wishes materialise this year. Among other demands, the industry expects improvements in the Affordable Rental Housing Complex (ARHC) scheme, which aims to provide affordable housing to the urban poor and migrant worker communities.

The ARHC scheme

A mark of social stability and economic security, home ownership is a fundamental requirement for any citizen. Considering the unmitigated hardships suffered by informal and migrant workers during the pandemic, the government attempted to address this segment’s inadequate living condition by launching the ARHC scheme in 2020 as a part of the Pradhan Mantri Awas Yojana-Urban (PMAY-U). The scheme is being implemented through two models.

Model 1 aims to utilise government-funded vacant houses, which are to be converted to ARHCs through public-private partnerships (PPPs) or through public agencies. Model 2 aims to encourage construction, operation and maintenance of ARHCs by private players on their own land.

The challenges and the way forward

Despite the favourable intentions of the scheme, there is room for improvement. Under Model 1, according to the Ministry of Housing and Urban Affairs, till date there are 83,534 government-funded vacant houses that are available for conversion into ARHCs. Of these, only 5,648 have been converted. To ensure a faster conversion, the government needs to ramp up its efforts to ensure an increased supply across the country as the demand for affordable and secure rental housing in major urban areas is much higher. Further, as most of these projects are located on the outskirts of cities and towns, connectivity to the main hubs can be improved. Provision of basic amenities—such as water, sewerage and healthcare—can also be developed further to increase convenience.

Additionally, many projects under the purview of Model 1 of the scheme are partially occupied by people who have been rehabilitated after slum demolitions and forced evictions. A well-established guideline can be formulated to ensure that only the target beneficiaries receive maximum advantage out of this scheme. For instance, in 2021, the Labour Bureau had launched the All-India Survey on Migrant Workers to analyse employment-related migration that occurred after the pandemic and understand the working and living conditions faced by the group. While data-driven insights can be used by the government to improve the ARHC scheme, the survey has been subject to multiple delays and is yet to be completed. There can be an increased focus on clearing such administrative roadblocks.

Under Model 2, incentivisation can be increased to make the arrangement more attractive for private players. According to a update by the government in July 2022, so far, approximately 80,000 new ARHC units have been sanctioned for construction by public/private institutions under this model, which is a low number. If we break down the distribution, the number of states that have participated is low, leading to unequal supply of units across the country. Active participation of all states is required for which there is a need to make rental housing projects much more lucrative for real-estate developers.

For instance, Section 80-IBA (6) (da) of the Income-tax Act, 1963, provides incentives for rental housing projects notified on or before March 31, 2022. The time period for offering these incentives to developers can be extended as many states are yet to decide on a rental housing policy. Moreover, developers can be provided with tax benefits to lure them to the scheme. Incentives such as exemption of tax on notional rental income will further encourage developers to increase the supply of rental housing units.

Upscaling under Budget 2023

The government has been proactively working towards the ‘Housing for All’ mission, considering the allocation of Rs 48,000 crore for the PMAY scheme last year. While the initiative is welcome, in this year’s budget, the industry expects the government to identify the underlying core complications of the ARHC scheme and ensure rapid acceleration so that it achieves the desired outcome sooner.

The author is co-head and COO, India Global, KPMG in India