HOUSING FUND, A GOOD BEGINNING? : The Times of India

Having a housing fund will definitely push the cause of affordable housing in the state and will encourage more potential buyers to come forth and secure the home of their dreams

The Maharashtra government's reported plans to start a 'housing fund' have been welcomed within the built environment of the real estate sector across the state. In the upcoming state housing policy, the government proposes to start a housing fund to make homes affordable for people in the state. As per the plan, one can contribute a fixed amount of monthly earnings for a certain period, where a self-employed person or a government or private employee desirous of becoming a member, can contribute a fixed percentage of hisher salary in this fund. The fund will be managed by a fund manager chosen through competitive bidding.

However, what appears to be a promising prospect has its own `ifs' and `buts' as well and hence, the analysts are debating over the execution, implementation and financial viability of this housing fund. As per the policy, the members of this fund will have priority in eligibility in Maharashtra Housing and Area Development Authority (MHADA) draw for sale of flats. In case, the members of the 'Housing Fund' intend to buy a house from the private sector, the fund proceeds can be utilised for the same also. Vineet Relia, managing director, SARE Homes, feels that, on paper, it sounds like a good idea. He, however, believes in the old adage that the proof of the pudding is in the eating. It will be a few years before the results are before us. Yet, considering the high rates of properties in Mumbai and the inability of most people to afford a flat, this seems a step in the right direction. Despite lenders sanctioning upto 80 per cent of a flat's costs, middle-class buyers struggle to cobble up the balance 20 per cent, due to the high realty rates. “A scheme that offers interest rates matching those of the PPF and makes contributions interest-free, will encourage and incentivise people to save more every month.The gestation period of 10 years' contribution before an applicant is eligible for a home seems long, though, since the aspiring home-buyer will continue to live on rent, which is an undesirable expense. It would be better if the gestation period is between three and five years, prompting prospective applicants to contribute higher amounts in order to reach their 20 per cent contribution faster,“ says Relia.

The question is whether it will lead to feasibility of affordable housing in the state. Analysts point out that this scheme could give a fillip to affordable housing by advancing loans from these funds to two entities: (a) builders who launch affordable housing projects; (b) housing societies that go in for redevelopment without involving builders.

Many developers could be interested in such a scheme for two major reasons. Firstly, loan advances from an official entity would help address their liquidity issues. Secondly, the problem of unsold inventories will be almost non-existent since there would be a captive target group of buyers for these flats. Moreover, depending upon their purchasing power, buyers have the option of booking MHADA houses or those of private developers. Affordable housing could receive a massive boost.Sahil Shah, principal partner, Square Yards, says the plan looks exciting, but execution, implementation and financial viability of it will be challenging.He points out that in Singapore, the government controls the housing supply of almost 80 per cent of the overall supply, and so, the government is also able to control the price points by regulating the flow of inventory into the market. It is difficult in a Mumbai like scenario where the sector is in the hands of private players. “The demand for affordable housing in the state is enormous; however, the feasibility completely depends on how the government shapes this policy. It will also depend on how much supply the government is actually able to create and in how much time. Developers involved in the construction of these housing units should be incentivised to build affordable homes to ensure that the project costs is balanced and not passed on to the customer. Additionally, having a mandatory reservation for such development within the municipal limits of Mumbai or Pune will also help to increase the supply of affordable homes,“ says Shah.

Gaurav Gupta, director, Omkar Realtors and Developers, calls it a really good concept by the state government to provide affordable housing. He calls for the guidelines towards the same that is still awaited; post which, there will be total clarity on the same.

“The move is really innovative as a concept by the housing department and will surely open up new means for financing to own a home. Will this have an impact on the cost of housing will only be gauged post seeing the actual guidelines. We will have to wait to assess the challenges for the same, that can be understood after seeing the guidelines,“ says Gupta. Despite such acceptances by the sector, there seems to be many a slip between the cup and the lip in terms of the challenges. The experience suggests that some excellent schemes in the past proved to be non-starters. Implementation and efficient follow through are, therefore, crucial. To begin with, the scheme should be publicised well among all stakeholders, so that it hits the ground running and receives contributions from the first month. For this to happen, the gestation period of 10 years should be reduced and the other norms should be user-friendly and flexible.Official schemes are often notorious for leakages and misappropriation; and hence, specific safeguards and comprehensive transparency is essential to ensure loans are not advanced to fly-bynight operators or ineligible entities ­ be they builders or housing societies.Having the scheme online could address some of these issues. It is imperative too, that these affordable projects are within city precincts or in outlying areas that have good connectivity. Affordable housing projects that are miles away from urban zones and lack proper connectivity will fail to take off because people prefer purchasing homes that are closer to their workplaces or have robust connectivity and inexpensive transport options. The housing fund is a good beginning.