As India’s construction industry remains in the grip of a two-year-old downturn, the state has decided to offer construction finance to developers to boost affordable housing in Mumbai, the country’s most expensive real estate market.
The plan is, the Shivshahi Punarvasan Prakalp Ltd (SPPL) —a fully-owned government company — will extend finance for construction activity at an interest rate of 11.15 per cent annum. The government, which had unsuccessfully experimented with a similar scheme once in the late nineties, has, however, decided that these loans won’t be offered on a carte blanche.
Those availing these offer will have to build low-cost houses for the weaker sections and sell these to SPPL at a nominal cost, which promotes slum and affordable housing development. Also, SPPL will only offer these to developers taking up slum rehabilitation schemes in Mumbai. The funds will be released in instalments and would be linked to various construction stages.
The move comes at a time when the government is scrambling to meet a target of creating 11 lakh affordable houses. The loan scheme in the late nineties had bombed after several developers faltered on repayments driving SPPL to a liquidity crisis.
But SPPL’s Managing Director Debashish Chakrabarty was confident of the scheme paying dividends this time around. “We are trying to do things differently this time and so, instead of giving out loans, we are going to provide construction finance that will be linked to various stages of construction,” he said. “We will select those proposals for giving out construction finance that promise to give us the highest number of affordable houses of 323 sqft (30 sqm) at the lowest possible cost,” Chakrabarty added. He said the scheme will be available for both ongoing and new redevelopment projects. Amid the slowdown, several slum rehabilitation projects are presently stuck with the developers facing a cash crunch.
But to avail of the scheme, developers will need to show slum redevelopment experience, a gross turnover of at least Rs 25 crore in three years and be required to initially put in 10 per cent of the construction finance as their seed investment. SPPL will waive off the requirement of prior experience in slum redevelopment or the financial eligibility criteria for non-governmental organisations or cooperative housing societies of slumdwellers who apply for the scheme. SPPL has also proposed a penalty of 2 per cent per annum for delays in handing over the affordable housing tenements.
“Until now, slum rehabilitation projects were being completely implemented and financed by developers. We are trying to bring in a sustainable model of institutional finance for such projects. We are also in talks with HUDCO, National Housing Bank and such other banks and pension funds to raise resources,” Chakrabarty said. Under the slum rehabilitation model, private developers are offering incentives in floor space for rehousing slumdwellers living in slum structures built before January 2000 in highrises constructed on a portion of the plot that the slum occupies.
The incentive can be as high as 100 per cent of the rehabilitation component. While these incentives were first rolled out in 1995 to push the idea of a slum-free Mumbai, the slum rehabilitation scheme has so far been a dud with less than 10 per cent slum structures in Mumbai rehabilitated. The implementation has been mired with allegations of rampant corruption and profiteering by developers. Chief Minister Devendra Fadnavis had last year revived the cash-hit SPPL with an infusion of Rs 500 crore in capital. “Our latest effort is aimed at providing a third dimension to slum rehabilitation other than the rehab and luxurious sale tenements.”