We've suggested affordable housing parks near big cities: Sriram Kalyanaram

As managing director of the National Housing Bank, Sriram Kalyanaraman plays a key role in fulfilling the government’s agenda of providing housing to all by 2021. Kalyanaraman, who left his job at a multinational private bank and took a substantial cut in his salary so that he could make a difference, talks to Surajeet Das Gupta about the challenges in the real estate sector and approaches to resolving them. Edited excerpts:

The big challenge in affordable housing is to build such houses in large cities. How are you addressing this issue? 

We have suggested to some states that they should create affordable housing parks, like industrial parks, which will be located a little outside cities. You cannot have affordable housing in Worli or Bandra or Connaught Place. The main problem a builder faces is in purchasing land and then building infrastructure like road, water and electricity around it. Our suggestion is that state governments should identify land parcels and  pre-approve them for affordable housing, build all the infrastructure and then auction these to builders. It is the job of the state governments to provide infrastructure, so our suggestion is that they should auction such land without loading the cost of infrastructure.  This will help keep the prices of houses affordable and make mass housing possible.

What are the cost economics of this model?

Faster approvals and processes can reduce the cost of housing for the builder as well as the buyer by about a third on account of savings in interest, taxes and overheads.

We have to work backwards to bring down the cost to, say, Rs 1,400-1,500 a sq ft. Currently the cost of affordable housing is Rs 1,800-2,200 a sq ft. You can bring it down if you do not charge for the cost of infrastructure. Infrastructure costs constitute 7-8 per cent of the cost of a house.   
 

Real estate developers across the country are saddled with large inventories and are not being able to sell even at lower prices. Large projects have stopped construction, leaving buyers stranded. What action is being taken to tackle this issue?

According to a report by the Ministry of Housing and Urban Poverty Alleviation, there is a shortage of about 96 per cent in EWS/LIG housing, and many builders have realised the potential and transformed themselves to cater to these segments. Yes, there are housing stocks lying unsold in certain pockets and properties under construction in certain other pockets. The government is trying to resolve the issue.

Recently the Insolvency and Bankruptcy Board of India (IBBI) introduced an amendment to protect the rights of individual buyers by recognising them as creditors in addition to financial and operational creditors. Buyers need to factor in the builder risk while buying a property under construction.
 

The implementation of RERA in states has been slow and, in many cases, has not begun...

We understand that more than 25 states and Union Territories have already come on board and have issued notifications for implementation of RERA. Its effective implementation is yet to run on full throttle and the status varies from state to state. To ensure that developers comply with deadlines and other obligations prescribed in the law, it is imperative that the states ensure that the piece of legislation is effectively and promptly implemented. This step will increase confidence among investors and consumers and will open a progressive path for the sector.

Property transaction taxes in the country are high and diverse. What is the NHB doing to bring them to reasonable rates?

The NHB is in talks with the central and state governments for rationalising stamp duty and registration charges and moving the process online. The effective stamp duty for the end customer at present varies between 6 per cent and 12 per cent. We are of the opinion that a uniform low duty on registration, at least for affordable housing, will boost the industry.

The NHB in association with IIM Bangalore has developed a model where states can gauge the revenue impact if they change the stamp duty in any segment. We are following up with some states to supply us data to feed this model so that officials can assess the revenue implication for any change in stamp duty.
 

Small housing finance companies are finding it difficult to raise funds. Are you looking at new financial instruments to assist them?

One way this can be done is to encourage them to access the bond market. We are looking at developing a credit guarantee product. If this becomes operational, the very fact that we are supporting it will give it a higher credit rating. Our goal is to create a eco-system where funds should not be a constraint. We also want to open up more liquidity in terms of mortgage securitisation.

How many housing finance companies have you given permission to operate?

As on date, 89 housing finance companies have been granted the certificate of registration under Section 29A of the National Housing Bank Act, 1987. Based on the business plans submitted by some of them, our understanding is that new companies intend to cater to the low-income borrower. The NHB has taken initiatives in promoting rural housing finance companies and we are also working on a methodology to fund the smaller and newer ones.

The NHB is also a refinancing agency and in the last financial year we disbursed Rs 22,684 crore, the highest amount so far. Our refinance is available to companies with a 12-month vintage and we are working towards further facilitating access to market finance for small companies.