Niti Aayog has proposed a dedicated fund under the National Housing Bank (NHB) and the Housing and Urban Development Corporation (HUDCO) to provide long-term financing for affordable rental housing, as part of its recommendations under a comprehensive framework to promote affordable housing.
The framework, issued in a report on Tuesday, highlighted issues of high land costs, shrinking supply, weak rental frameworks and limited access to finance that have led to a widening affordability gap, impacting large sections of low- and middle-income households.
While recommending solutions at the Centre and state levels, the policy think tank has directed the fund to access low-cost capital sourced through tax-free bonds or priority sector lending (PSL) shortfalls.
“Enabling external commercial borrowings (ECBs) and granting relief from the Minimum Alternate Tax (MAT), payable under Section 115JB of the Income Tax Act, can also support the development of particularly affordable rental housing,” the report said.
The fund will be deployed towards investments in rental housing, including industrial worker accommodation, hostels for working women and similar projects.
Niti Aayog has not addressed industry demand to change the definition of affordable housing or raise the price cap to Rs 90 lakh from the existing level of Rs 45 lakh. However, in its report, it has adopted a working definition of affordable housing where the carpet area is up to 60 sq m in metros and 90 sq m in non-metros, with a value not exceeding Rs 60 lakh in metros and Rs 45 lakh in non-metros. It has also adopted a definition of an affordable housing project as one where at least 50 per cent of the permissible floor area ratio (FAR) or floor space index (FSI) is dedicated to affordable housing units. It further flagged a significant gap in publicly available information on the launch, construction and occupancy of affordable housing projects and therefore said a centralised, technology-enabled housing database was needed. This, it said, would support accurate demand assessment and evidence-based policymaking.
The think tank has also recommended a mandatory reservation of 10 to 15 per cent of the built-up area for the economically weaker section (EWS) and low-income group (LIG) category in all housing and commercial projects exceeding 10,000 sq m of built-up area or 5,000 sq m plot area.
Such a mandate is already in place in several states, though there are divergences in the percentage of units or area reserved for the EWS/LIG category. “The recommendation may aim at providing a similar threshold in all states,” an industry expert told Business Standard.
“This mandate would significantly expand the availability of housing stock under the affordable category while ensuring that such units are integrated within mainstream urban development,” the report said.
This would be done by updating model building bye-laws and notifying a new affordable housing policy. The Ministry of Housing and Urban Affairs (MoHUA) will be responsible for preparing guiding provisions, with state governments asked to adopt best practices.
However, in cases where the builder is unable to construct the reserved units within the same project site due to justified reasons, a provision may be made for construction of the reserved housing units within a 4-kilometre radius from the original project site.
For projects beyond 1,000 sq m of built-up area, developers should be mandated to contribute to the shelter fund dedicated to building housing for the EWS/LIG category.
The Niti Aayog has also recommended that affordable rental be treated as residential use for utilities, property tax and goods and services tax (GST), for which it has suggested that GST and municipal tariff rules be revised.
“Ministry of housing and urban affairs to initiate, GST Council and states to implement,” the body added.
Further, the think tank has also recommended reintroduction of 100% profit exemption for affordable housing
projects through amendment to Income Tax Act, and exempting rental and capital gains income for affordable housing REITs.
“The revival of this incentive will provide a strong fiscal push to developers, improving project viability and encouraging greater participation from the private sector,” it added.
The policy think tank contended that affordable housing remains constrained not only by the high cost of land and low supply of units, but also by systemic weaknesses in the financing ecosystem.
To counter this, Niti Aayog has recommended the reintroduction of provisions under Section 80-IBA of the Income Tax Act, which earlier allowed 100 per cent income tax exemption on profits and gains derived by developers from the operation of approved affordable housing projects.
It has also asked for an increase in guarantee cover for loans under the Credit Risk Guarantee Fund Scheme for Low Income Housing (CRGFTLIH) from the current Rs 20 lakh to Rs 40 lakh to sufficiently cover the sale of affordable housing units.