MUMBAI, November 16: The government's National Housing Policy pays lip service to the avowed objective of housing the socially disadvantaged and does little to improve their living conditions. It takes no concrete steps to help them acquire and retain a roof over their heads. While subsidies are becoming a `dirty' word in the context of Third World countries, the government agencies have continued to raise the price of developed land. So, owning a roof over one's head, for most people, has become a practical impossibility and, as a result, the social housing policy has indeed become a non-starter. While the problems in the rural areas can be tackled by and large by providing the poor access to land for homesteads and local raw materials of a renewable nature through legislative intervention, the problem in urban areas is more complex, particularly when at least 30 per cent of the people being unable to afford formal housing are living either in JJ clusters or unauthorised colonies that are deficient even in basic sanitation facilities.

These problems are by no means unique to India and other Third World countries. Even developed nations feel the need to assist the urban poor and cities like New York City (NYC) have on-going schemes to help people whose income falls below the median income of $19,000 per year. Since the objective of the NYC scheme is to achieve an overall integration of the community and not create ghettos, they have gone about reserving 20 per cent of the assisted homes for renting to entitled group allottees. This is how the scheme works:

The city government determines and quantifies the need for rentable urban housing units and budgets the financial resources that would be required to implement such schemes through flotation of tax free bonds over the next 12 months.

The building promoters have the option to finance the construction of a building (post land acquisition) by raising resources from the buyers, from term lending institutes or else asking the city of New York to raise and provide resources after flotation of tax free bonds carrying repayment after 20 years, at a fixed and low rate of interest (7.5-8 per cent per year).To encourage the building promoters to participate in the social housing programme, the NYC corporation, in consideration of appropriating 20 per cent of the apartments, also provides concessional property tax facilities. Just because 20 per cent of the houses are placed at the disposal of the NY Municipal Corporation free of cost, the corporation not only undertakes to not to raise property taxes for the first 10 years, but also recover these taxes at 50 per cent of the rate applicable to non-subsidised buildings in the area for the full term of 20 years.

The builder developer, having secured loan finance from the municipal corporation, proceeds to build as per sanctioned plans and undertakes to hand over specified full floors to the municipal corporation upon completion of construction to enable them to rent them to eligible persons and appropriate the same for 20 years as loan administration fees.

In consideration of concessional property tax, the builder/promoter also undertakes to not levy any maintenance charges on the flats occupied by the municipal corporation allottees for a term of 20 years. While water consumption in these buildings is not separately billed, the occupants pay for electricity used by them at normal rates. At the end of 20 years, the occupiers have the option to continue to occupy the apartment at controlled rent as may be fixed by the city corporation from time to time. Since the occupier retains the premises as a tenant, the liabilities for payment of property taxes and common maintenance charges continue to rest with the builder. However, the rents are invariably increased to off-set the builder's liability.

The building promoters invariably rent their portion of the property at market rents and use a part of the rent proceeds for repayment of loans.This is how the finances work:

Available Floor Space Index (assumed): 500,000 sq ft

Estimated cost @ $1,000 per sq ft: $500,000,000

Land cost @ $600 per sq ft of FSI: $500 million

The builder provides 30 per cent of the construction cost and borrows $350 million @ 7.5 per cent per year and undertakes to repay $750 million (principal-cum-interest) over a period of 20 years, the half-yearly installment being $18.75 million.

The builder rents 400,000 sq ft at an average rent of $30 per sq ft per month and thus receives $12 million in rents each month and has the following outgoings:

Property taxes at one-sixth (after 50 per cent concession) of gross rent comes to $2 million. The common maintenance charges @ $1 per sq ft per month (subject to variation in line with costs) is $0.5 million. Hence, the total is $2.5 million.

He thus has an availability of $9.5 million per month ($57 million every half-year) to meet the equated repayment liability of $18.75 million every half-year and yet recover his investment of $450 million in approximately six years.

The NYC municipal corporation, on the other hand, rents the houses to individuals whose annual income does not exceed the median income of $19,000 per year at an approximate rent of $400 per month ($4,800 per year, which is approximately 25 per cent of the median income). With the average flat size of 600 sq ft, the Corporation earns $66,400 per month or, say, $800,000 per year and the sum so collected is $16 million over a period of 20 years, which the corporation retains as lease administration charges. They actually sustain a property tax loss of $24 million annually for 20 years as social costs. It would thus be seen that the scheme is self-financing for the builder even though the rents are subject to annual review being pegged at 25 per cent of median income for the city.

Therefore, taking a leaf from the city of New York and also considering that our metro cities have a high percentage of transient population with five lakh people arriving at the megapolises each year in search of livelihood, the need to augment rentable housing stock can hardly be overemphasised. It is, therefore, proposed that in the light of a clear decision to implement the shelter fund policy and also involve the private builders in mass housing programmes, the government should earmark sites for development of all rent buildings in different parts of the city. These sites, instead of being auctioned, should be offered at pre-determined prices.

In order to cater to the needs of economically disadvantaged groups, the government should involve model area allocation plans and lay down built-up area allocation, which will be placed at the disposal of the state housing board or any other designated agency responsible for housing the urban poor.To create sufficient interest for private developers to be interested in construction of all rent buildings, the government may offer sops of cheaper finance and lower property taxes as in the case of NYC.

There would also be need to bring about legislative changes that would enable municipal corporations in the metropolitan cities to float tax-free bonds of 20-year duration to raise resources for urban housing.

The state fund collections could be specifically utilised for infrastructure upgradation so that all segments of society will benefit from such expenditure.

It is now for the government to take policy initiatives and clear the decks for construction of all rent buildings as a supplement to the subsisting policy of owning a roof over one's head.

The writer is a real estate expert and former director, corporate affairs, Ansals Ltd

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.