‘Housing For All’ has been top priority for the government.Anuj Mehra , managing director, Mahindra Rural Housing Finance Limited, throws light on the government’s impetus to promote inclusive growth and shares suggestions to serve the bottom of the pyramid. Excerpts:
How would the infrastructure status given to affordable housing help?
The granting of infrastructure status to affordable housing will have a favourable impact on the developers’ ability to raise funds at a reasonable cost. This in turn will enable them to acquire large tracts of land (which is the major cost for developers) leading to an increase in the supply of affordable housing units.
The infrastructure status will enable developers to tap into long-term ‘patient’ capital (e.g. from insurance companies) besides accessing banks and the international markets.
What are the challenges faced in rural housing?
Unavailability of and lack of access to land records is a key roadblock to deepening finance in rural areas. This can be addressed by digitising land records. Agricultural land records can help estimate farmer income and non-agricultural land records can serve as a collateral for mortgage loans.
Further the Government could consider undertaking digitisation of land records in mission mode (akin to UIDAI), leveraging technology (Aadhaar-enabled phones and geo-tagging) and partnering with the private sector. For example, we have a strong presence in states like Tamil Nadu and Maharashtra with about 3,000 employees serving 2.75 lakh customers spread over 30,000 villages. We will be happy to assist in this exercise.
The government could also consider a time-bound, one-time registration holiday to regularise land records: Consider giving a one-time incentive or reward to local land officials for every land record updated; all land holdings (agricultural and non-agricultural) could be linked to Aadhaar, thereby providing a comprehensive information database to potential lenders and the government.
Lowering cost of land mutation and mortgage creation: the current government mechanisms for establishing ownership over land and land use conversion are time-consuming and costly; matters like conversion of agricultural to non-agricultural land should have provisions for ‘deemed approval’ beyond a certain Turn-Around-Time (TAT) as is already being done by some states like Madhya Pradesh.
Improving design and implementation of rural (housing) finance schemes: the government should consider the creation of a rural housing design cell and partner with the private sector to undertake research to design low cost rural homes and home loan products; MRHFL strongly feels that the credit linked subsidy scheme (CLSS) should be extended to rural areas, possibly providing higher quantum of subsidy, in order to ensure proper utilisation of funds.
Any rural (housing) finance scheme should also have provisions for reimbursement of upfront expenses since the beneficiary needs to spend some money to prove ownership over property, register mortgage etc. before beginning construction.
Moreover lost wages reimbursement is needed since beneficiaries have significant self-labour contribution in any construction activity related to their home.
Productive asset financing such as cattle financing, inventory financing for a small shop etc could be introduced so that it can act as a hedge against the monsoon dependent agricultural cash flows and increase rural incomes per se.
Crop insurance scheme would be helpful since repayment capacity depends on agricultural cash flows, a bad monsoon can lead to significant hardships for beneficiaries. Currently the crop insurance scheme is linked only to agricultural loans and should be extended to rural home loans to mitigate this risk and improve the credit-worthiness of all rural customers.
Since illness also affects repayment capacity, a ‘free/subsidised’ health card which is administered by third-party administrators and accepted in all hospitals will be a big boon. All associated costs for such a scheme could be borne by the government.
Further there is a need to create differential regulations for rural and urban finance companies: Companies financing customers in the rural areas should be treated differently and the government should consciously encourage such companies to attract more entrants to further the aim of financial inclusion and ‘Housing for All’. Such companies could have different norms (NPA recognition, provisioning, access to capital etc.) and access to different funding sources (lower cost ECBs, special refinance windows etc.).
Are challenges any different in semi-urban affordable housing?
There is a need for more measures to incentivise demand rather than supply in semi-urban / urban housing. Surplus inventory in most metros indicates that units aren’t ‘affordable’ in the genuine sense – either from the cost or the access perspective.
Central Government’s Credit Linked Subsidy Scheme (CLSS) under PMAY for the LIG segment is an excellent initiative for incentivising demand.
Other ideas include lowering stamp duties and registration charges, operating a transparent allocation mechanism, improving infrastructure and connectivity and promoting in-situ developments.
Our experience also shows that schemes are most effective when customers don’t get houses for free and have some capital invested in the home in the form of own equity and a home loan liability.
This ensures that there is personal equity invested in the property from the beginning.
Since there is a home loan liability, property gets mortgaged to the housing finance company, making it tougher for the customer to resell the property.
From the housing finance company’s perspective, this becomes attractive as the government can assist in reallocating the unit in case of customer default. Some states and government bodies undertake to reallocate a house allotted to a beneficiary if the beneficiary defaults on repaying a loan extended by a housing finance company or a bank. This reduces the financier’s risk and dramatically improves the overall attraction of the scheme. This public private partnership model enables the government to increase the coverage and ensure higher number of beneficiaries.
Delays in finalising and obtaining sanction maps especially in outskirts of cities, where most affordable housing development takes place is a major hindrance in financing such units.
The government could also popularise residential REITs by piloting a ‘Rent to Own’ model which could see a new category of investors in residential REITs renting out properties with an option for occupant to eventually purchase the unit.
What additional steps should the government take to serve the bottom of the pyramid?
Many bottom of the pyramid customers slip into a debt trap on account of (unforeseen) medical expenses. With health insurance offered to such customers (which besides the cost of treatment covers at least subsistence wages), the government will be able to make a huge difference.
Lenders who currently shy away from this segment may be willing to take an exposure if this aspect is taken care of. In our experience, customers who temporarily stop servicing their EMIs do so either because a significant portion of their incomes is suddenly diverted for medical emergencies or they are unable to earn because of the medical condition.
Digitising land records after a proper survey and making these accessible to recognised lenders could transform rural lives as it will monetise the only asset most farmers own.
State governments could examine applicable FSI norms for affordable housing. This will bring down the cost of land which tends to be the major cost for affordable housing. In addition the Government could encourage (through gap-funding etc.) the public – private partnership model to develop infrastructure and establish townships with excellent connectivity. The (new) locations will reduce land cost for affordable housing units while proper connectivity with the main city will ensure ease of travel (thereby ensuring that a customers’ income does not get impacted in any way).
Does the budgetary emphasis on rural development address the root cause?
Rural incomes will receive a boost due to spends like those announced for irrigation, roads, etc.
Better roads enable the farmer to transport his produce easily, in time and even over long distances to get the best possible price. The planned spend on MNREGA and the emphasis on projects like making roads (which will have a long term impact) will increase incomes and extending the coverage of insurance will bring more stability to earnings and cash flows.
How do you differentiate between affordable housing in rural areas and those in urban and semi urban areas?
Urban consumers normally depend on a builder to construct homes. Thus supply of affordable housing is dependent on the developers/ builders. In rural areas, almost all houses are “self constructed”. In fact in a large number of cases the family gets involved and part of the labour requirements are met by the family itself.
How will impetus to housing affect the economy?
Housing has a large linkage to economic development as it leads to use of labour, materials etc. Building of new housing units will provide a fillip to local labour, and use of construction materials – thereby impacting industries like steel, cement etc.
Which are the major areas (States) your company is having operations?
Currently we are operating in Maharashtra, Tamil Nadu, Andhra Pradesh, Karnataka, Kerala, Madhya Pradesh, Rajasthan and Gujarat. We have recently commenced operations in Uttar Pradesh and Bihar.
Are you planning to expand your operations to other parts of the country?
Besides Uttar Pradesh and Bihar where we have started operations recently, we will launch operations in two more states by March 2018.
