Draft policy proposes to treat housing on par with infrastructure

It also recommends creation of two funds of Rs 500 crore each to manage risk

The draft National Housing and Habitat Policy 2005, which was placed before the Union cabinet recently, has recommended that capital markets should be encouraged to invest in social infrastructrure.

It has also suggested the creation of two funds of Rs 500 crore each to manage the risk that the investors would incur by investing in building primary schools, colleges, hospitals and low-cost housing for the economically weaker sections.

The draft policy has recommended that the housing sector should be treated on par with other infrastructure projects with appropriate tax concessions for investors.

Said Kumar Gera, chairman of the Construction and Real Estate Developers Associations of India (Credai), "The new policy should encourage not only Indian capital market investors to invest in social infrastructure, we hope that it will also draw the foreign investors."

Gera was on the 26-member panel which drafted the policy. Others on the panel include representatives of the Credai, Confederation of India Industry, Housing and Urban Development Corporation (Hudco), HDFC and National Housing Bank (NHB), Planning Commission, ministries of urban development, finance, state governments of Uttar Pradesh, Maharashtra, West Bengal, Tamil Nadu.

In order to promote private sector investment in low-cost housing, the draft policy has suggested setting up a national shelter fund with an initial corpus of Rs 500 crore to be contributed by the government.

The fund, to be administered by the National Housing Bank, will provide support to financial institutions investing in low-cost housing for the economically weaker sections. The policy document has also suggested issuing bonds to raise additional funds for this sector.

According the Planning Commission estimates, there is a requirement of 22.44 million housing units in the 10th plan with a backlog of 13.5 million units at the beginning of the plan period.

The current demand-supply gap is pegged at 8.89 million units in the urban areas alone.

The draft policy has recommended raising a "risk fund" of Rs 500 crore with housing finance institutions, commercial banks contributing to the fund.

The draft policy has also suggested tax concessions such as the imposition of a flat rate of 10 per cent on the income from renting of new properties for the first five years.

Under the draft policy, NHB has been asked to develop and strengthen the secondary mortgage market.

The draft policy also envisages rationalisation of stamp duty on residential mortgage backed securitisation (RMBS) as well as allowing foreign institutional investors to invest in RMBS issues.

The central government had constituted a task force in Februay 2005 to review the National Housing and Habitat Policy, 1998.