Today in New Delhi, India
Dec 10, 2018-Monday
New Delhi
  • Humidity
  • Wind

World Bank Group, HDFC create fund to finance affordable houses

Developers can borrow from the $800 million fund to build homes under Pradhan Mantri Awas Yojna.

business Updated: Nov 16, 2017 22:56 IST
P Suchetana Ray
P Suchetana Ray
Hindustan Times, New Delhi
World Bank Group,HDFC,Afordable house
Under the Pradhan Mantri Awas Yojna, the Modi government proposes to provide houses to all urban poor by 2022. (Sunil Ghosh/HT File Photo)

The World Bank Group has tied up with HDFC Ltd to create an $800 million fund to finance construction of affordable homes.

Property developers can borrow from this fund if they build houses that qualify as affordable ones under the Pradhan Mantri Awas Yojna (PMAY) for urban India. Through this scheme the Modi government proposes to provide houses to all urban poor by 2022.

This fund will be managed by HDFC and will be available for five years. The loan pricing and choice of developers will be decided on the basis of creditworthiness, track record and ability to develop.

India needs to build 19.6 million affordable homes to provide housing for all. Of this, 11 million are to be in the urban areas and the rest in villages.

Computing five members to a household, those 19.6 million homes will provide a roof over nearly 100 million heads. That’s the population of Spain and Kenya combined.

To create this fund, World Bank’s arm, the International Finance Corporation (IFC) will put forth $200 million by subscribing to Masala bonds, rupee-denominated instruments, issued by HDFC and to be listed on the London Stock Exchange. HDFC will contribute the remaining $600 million from its own resources.

The affordable housing segment was given a shot in the arm by the government in Budget 2017 where it accorded the sector the status of infrastructure which gives developers tax holidays along with easier access to credit.

Developers also have other financial benefit for operating in an infrastructure sector.

The government also created two new middle-income categories under PMAY for urban areas. One with an annual income between ₹6 and ₹12 lakh and the other between ₹12 and ₹18 lakh.

Prime Minister Narendra Modi had announced earlier this year that loans of up to ₹9 lakh will receive an interest subsidy of 4% and loans of up to ₹12 lakh will receive a 3% subsidy.

But experts say that lack of credit for developers and low demand from homebuyers are the two issues plaguing the sector.

“It has to do with allocation of funds by banks. Financial institutions need a good business model, though few developers are doing a good job in the affordable sector, but the sector is at a stage when it is about to take off. So things will improve from here on,” said Subrata Dutta Gupta, South Asia lead for housing in IFC.

Scarce and expensive urban spaces force developers to look at satellite town, making connectivity a big disincentive for buyers. Experts said given the high debt of most developers, financial institutions are reluctant to lend. But after almost four years, the sector is looking up, said developers.

“Consumer sentiment for affordable homes have been on a rise from the past three quarters with the benefits of the changes in the real estate sector bearing fruit. The new regulations have added a new positive dimension to the sector. This is a good environment for structured developers to cater to the latent need for housing across the country. Add to this the impetus received from financial institution in the loan disbursement space,” said Brotin Banerjee, CEO and MD, Tata Housing.

First Published: Nov 16, 2017 22:55 IST