Mumbai: Draft policy to make houses affordable

Policy proposes a new scheme where societies and builders will get a government loan for building affordable housing units

The state government has come up with a draft housing policy, and it has a provision where a builder or a housing society can avail a loan from the government to construct buildings and provide housing for the Economically Weaker Section (EWS) and Lower Income Group (LIG). 

File photo of a MHADA building near Kandivali Link Road
File photo of a MHADA building near Kandivali Link Road 

The good thing for homebuyers is that these units will be sold to citizens with not more than 10 per cent down payment and the balance 90 per cent will be paid by the purchaser at the end of 15 years, and only interest will be serviced by the buyer in the meantime. The other good thing is that Cooperative Housing Societies (CHS) will be given preference for the loan. This also will mean that builders who actually couldn’t borrow from the banks — banks hesitate to lend money to this sector— will have access to loans from the government.

Affordability, the key
The policy claims that affordability is an important aspect of providing housing to the EWS/LIG strata of society. The policy further reports that there have been several studies that have indicated that though the need for housing is prevalent, affordability is the key impediment and the government is planning to intervene by providing finance.
According to the policy, it is proposed that the Maharashtra Housing and Development Authority (MHADA) will create a fund with an initial corpus of Rs 1,000 crore for this purpose.

A qualified fund manager having experience in providing housing finance will manage this R1,000 crore corpus. The selection of the fund manager will be done through a competitive bidding process. The manager will be mandated to provide funding to developers who are building LIG/EWS type of houses.

The fund manager will be responsible for evaluating the project, the credibility of the developer, and will approve the loan to a developer only after detailed due diligence. The policy specifies that existing CHS going for redevelopment will be given preference.

Under this scheme, a loan will be granted by the fund to a developer for a period of 15 years at the SBI Prime Lending Rate (PLR) for an amount not exceeding R10 crore per borrower or the CHS.

The policy will enable individual societies to undertake self-redevelopment. In turn, the developer or CHS will be mandated to sell units of equal value of LIG and EWS type in the schemes to eligible persons in the LIG and EWS category on the basis of interest only basis with bullet repayment (where the borrower does not pay the principal amount over the duration of the loan, but makes the payment only at maturity) at the end of 15 years.

The policy states, “In case the cost of the unit is R10 lakh, then the developer or CHS will sell the unit to LIG and EWS citizens with not more than 10 per cent down payment, and the balance 90 per cent will be paid by the purchaser at the end of the 15 years and only interest will be serviced by him in the meantime.”

The developer or CHS will be liable to service the interest on the loan granted by the fund for 15 years and will be liable to repay the principal at the end of 15 years. The developer’s or CHS liability to service/repay the loan will be unconnected to the servicing/repayment by the flat purchaser. In other words the credit risk in this regard will be always borne by the developer and not the purchaser, and it will be the developer’s liability to repay the loans to the fund.

If the housing policy gets passed, then a detailed scheme in this regard will be notified by the Housing department, within three months.

The department has submitted the housing policy to the government, which has to take a final call on it. It’s expected that the policy will be tabled before the Cabinet within a week, and the policy is expected to sail through. Calls to Housing Minister Prakash Mehta went unanswered till the time of going to press.

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