‘Builders can Borrow Abroad only for Low-cost Housing Projects’

Ministry says 90% of units must be for low-income persons while the rest may be open to top-end group

The government will allow builders to raise overseas debt only for projects where 90% of the units are for low or middle-income groups, according to a senior official in the ministry of housing and poverty alleviation. 

The official said these projects will, however, be permitted to have highend apartments or commercial spaces in the remaining area. Apartments under 85 sq metre, or 900 sq ft, of covered area are classified as MIG. Finance minister Pranab Mukherjee had announced in the Budget that external commercial borrowing will be permitted for low-cost housing, but he had not defined the projects that will be eligible for it. Real estate companies were allowed to raise funds through ECB in 2009 only for integrated townships. Other projects cannot access overseas funds through this route. 

The ministry of housing is working with the department of financial services in the finance ministry to finalise eligibility norms of projects for ECB, the official quoted above said. The move is expected to spur investments in low-cost housing projects as overseas funds could be raised at lower rates. High cost of funds are often blamed for making low-cost housing a non-starter in the country. 

In 2009, the government had allowed real estate companies ECBs but only for integrated townships. 

The housing ministry is also working on defining 'affordable housing' and is formulating guidelines on how to optimise the use of land for this segment. "Along with cheaper funding, this segment requires cheaper land. We are studying how land can be made available to them," said the official. 

To boost the supply side, the ministry's committee on affordable housing is studying what other financial support can be given to developers. This could include stamp duty exemption, lower development fees, capital subsidy on the housing stock, income tax rebate or even land concessions. Currently, a developer constructing low-cost houses can seek . 15,000 per unit of government assistance. 

To mobilise demand for smaller homes in the economically weaker section and low-income group category, the ministry has suggested a credit facility to buyers with much higher interest subsidy than is available today. The current scheme offers buyers an interest rate subsidy of 5% for loans under . 1 lakh but since there are no homes that are on offer at such low prices, there have been no takers for this scheme either. "We are suggesting an interest subsidy between 3% and 5% for loans under . 5 lakh," he said.