Affordable Housing: PMAY - Series 2

Generic PPP Models for Affordable Housing

·        Model 1: Government-land Based Subsidized Housing (GLSH)

Model Description Under this model, the public authority will provide land on a long-term lease (preferably on a nominal lease rental) to the selected private developer. This would effectively constitute a state subsidy for the project. The private developer will be responsible and held accountable for designing, building and financing of affordable housing stock and associated services of predetermined standards, at a pre-determined cost and within a predetermined time. The public authority will undertake to compensate the private developer for the housing stock on the satisfactory completion and handing over of the units, as per prescribed standards, cost and time. Thus, the responsibility and risk for cost recovery rests on the public authority.

The allottees would be required to make payment of a pre-determined amount for the cost of the housing unit at the time of handover. Alternatively, the Allottees could be required to pay predetermined equated monthly installments for a predetermined period of time to the public authorities.

There is no involvement of private developer and public authority for the maintenance of the units after the transfer of units to allottees. A Resident welfare Association (RWA), inclusive of members from all economic class of residents, may be constituted for upkeep of common areas and public spaces within the Group Housing premises.

The private developer will transfer the housing stock to the public authority. Loans at an appropriate rate of interest and appropriate tenure could also be made available through housing finance institutions to the allottees for this purpose. An interest subsidy for the allottees could also be built into a financial subsidy regime through central nodal agency (NHB/HUDCO).

·        Model 2: Mixed Development Cross-subsidized Housing (MDCH)

The essential difference in this model from model 1 will be that the developer does not receive any payment from the public authority for providing the affordable housing stock. Instead, the private developer will be allowed to build and sell high-end housing on a portion of the land allotted. The private developer could even be allowed to utilize the entire land made available by government for high-end housing in exchange for providing affordable housing at another location, on land to be arranged by the private developer. Effectively, this constitutes a cross subsidy between the high-end housing and affordable housing in addition to the subsidy in the form of land provided by the government.

The value creation for the private developer can be further enhanced by providing higher FAR, TDR as well as fast track clearances for undertaking the development of high-end housing. In exchange for all this value creation, the private developer will be required to provide affordable housing free of cost.

·        Model 3: Annuity Based Subsidized Housing (ABSH)

As in Model 1, government will provide land under this model as well. The key difference in this model will be that the developer receives revenue from the government in the form of regular annuity payments for a period of time (say 15-20 years) instead of a lump sum amount at the time of handover. This long-term association of the Developer with the project will also require the developer to maintain the assets during this period and transfer the dwelling units back to the public sector or its nominees at the end of the period. The public authorities will monitor the quality of the maintenance and there will be rewards and penalties linked to the long-term quality of service received by the occupants. These rewards and penalties will be reflected in the annuity amounts paid every year.

The primary objective of this model is that in addition to the construction risks, the maintenance risk is also transferred to the private sector.

Also, under this model the responsibility of government to compensate the Developer is spread over a long time through the annuity structure. The responsibility for raising and servicing the financial investment would of course continue to vest in the developer.

·        Model 4: DBFMT –Annuity cum Capital Grant based Subsidized Housing (AGSH)

This model is similar to the Model 3: DBFMT Annuity Model, except that under this model a significant proportion of project cost (say 40-50%) is paid to the private developer during the construction phase itself. The remaining amount is paid to the developer as an annuity during the next 15 to 20 years after the successful completion of the project. The annuity amount will of course be lower under this model than under Model 3 since the developers will also receive a capital grant.

·        Model 5: Direct Relationship Ownership Housing (DROH)

The essential difference between this Model and Model 1 is that in this model there will be a direct financial relationship between the Developer and the Allottee. The land will be allotted by the government and will constitute a significant subsidy. However, the Allottees would be required to make payments towards the cost of the housing unit directly to the Developer. Thus the private developer will undertake to recover the cost of affordable housing directly from allottee. This recovery may take the form of a lump-sum payment at the time of transfer of housing unit to allottee or in the form of equated monthly installment (EMI) for a fixed period of time leading to the transfer of unit to the allottee. The risk of cost recovery will be transferred to the Developer. The developer will also be responsible for the maintenance of the dwelling units for a pre-determined period that can be same as the cost recovery period.

This model entails the highest level of risk transfer to the private sector amongst the earlier 4 models. In order to recover costs the Developer will need to have eligible customers who are willing to pay the cost. The Developer’s interests are thus aligned with providing a wellconstructed and well-maintained house to a customer. If properly implemented, this should result in good outcomes.

Collection of monthly payments in the form of EMI is a significant risk to be borne by the Developer under this model. Empowering the Developer to impose reasonable penalties, for delay or non-payment, shall mitigate this risk. Access to speedy dispute resolution between the Developer and the Allottee will also be required for this model.

·        Model 6: Direct Relationship Rental Housing (DRRH)

The essential difference between this Model and Model 5 is that in this model the Allottees would be required to make rental payments towards the usage of the housing unit directly to the developer, whereas these units continue to be owned by the developers. Thus the private developer will undertake to recover the cost of affordable housing directly from allottee. The developer will also be responsible for the maintenance of the dwelling units for a pre-determined period.

This model entails the highest level of risk transfer to the private developer among all the models. In order to recover costs, the developer will need to have eligible customers who are willing to pay the requisite rent.

The Developer will also need to expend its own resources to find clients in case the existing tenant move out of their housing units. The developer might not find eligible customers to occupy the housing units in case of economic downturn, which might result in extension of cost recovery period.

Collection of monthly payments in the form of rent is a risk to be borne by the developer under this model. Empowering the developer to impose reasonable penalties, for delay in rental payments or rental non-payment, shall mitigate this risk. Developer shall mandate a fixed date by which the customers should pay the rent to the developer.