Pradhan Mantri Awas Yojana & Its Impact on Real Estate

According to a report published by the National Commission on Population, India’s population will hit 1.52 billion by 2036, which is 25% higher than that in 2011. In fact, 70% of this growth will be observed in urban areas. Although the population continues to expand, there will still be a shortfall of 20 million houses for the rural and urban poor in the coming years. With an aim to address the shortfall and to develop houses that cater to the needs and requirements of both rural and urban populations, the Pradhan Mantri Awas Yojana was launched in 2015.

Since its inception, 34 lakh houses in urban and 1.12 crore houses in rural areas have been delivered. The recent slew of reforms like tax concessions and reduction of GST on real estate projects falling under the affordable category has further instilled confidence amongst homebuyers.

Additionally, the much-awaited infrastructure status to the affordable housing segment has brought relief for real estate developers. Through this article, we aim to bring forward the salient features of the PMAY scheme and how it has impacted the real estate sector, at a large. 

What is Pradhan Mantri Awas Yojana?

Launched in 2015 by the Ministry of Housing and Urban Affairs, the Pradhan Mantri Awas Yojana aims at providing houses to all the citizens belonging to a specific economic section by the year 2022. However, the scheme’s implementation has now been extended to 2024. The 4 main elements of the program are:

• Credit Linked Subsidy Scheme (CLSS)
• In-situ Slum Rehabilitation
• Housing in Partnership
• Beneficiary led construction.

Based on the category they belong to i.e. EWS/LIG and MIG, the eligible beneficiaries will receive an interest subsidy on the loan availed.

This scheme covers both urban (PMAY-Urban) and rural India (PMAY-Gramin) and envisages constructing houses with proper sanitation, water, and electricity supply. While the former covers 4000 plus cities and towns pan-India, the latter lays emphasis on slums, villages, and other rural areas. 

How is the PMAY Scheme Being Implemented?

As discussed, the Pradhan Mantri Awas Yojana encompasses 4 components. These are the methods through which the scheme will be implemented. In the following paragraphs, we will cover all the components in detail.

1. Beneficiary-Led Individual Construction

Through the BLC or Beneficiary-Led Individual House Construction scheme, the Pradhan Mantri Awas Yojana also assists EWS beneficiaries who want to redevelop or construct their own homes. While for the urban areas, central assistance of ₹1.5 lakh is provided, funding between ₹70,000 and ₹1.3 lakh is offered for citizens living in rural areas. 

2. Affordable Housing Through Public-Private Partnership

Another important component of the Pradhan Mantri Awas Yojana is the housing scheme through PPP mode. However, unlike the CLSS, it is applicable only to the economically weaker sections. These projects are implemented by the state/UT governments, urban local bodies, or development authorities in partnership with private entities. In the case of collaboration with private real estate developers, the central government provides assistance of ₹ 1.5 lakh to the eligible homebuyers.  

3. Credit-Linked Subsidy Scheme Under PMAY

Initially launched for economically weaker section groups in 2015, the Credit Linked Subsidy Scheme under PMAY allows low and middle-income citizens to purchase homes at affordable rates. The scheme offers a subsidy on the interest component of the loan amount, thereby making home loans affordable. To understand the nitty-gritty of the program, you first need to understand the 3 categories which are covered under the scheme.

• EWS and LIG: Economically weaker sections (EWS) or the low-income groups (LIG) constitute those families whose annual household income ranges between ₹3 Lakh-₹6 Lakh. 
• MIG-II: Households whose annual income is less than ₹12 Lakh but more than ₹6 Lakh fall under the MIG-1 or middle-income group-1 category. 
• MIG-II: The middle income groups whose annual household income ranges between ₹12 Lakh-₹18 Lakh fall under the MIG-II category. 

Criteria	LIG and EWS	MIG-I	MIG-2
Annual Income of the Household	Upto ₹6 Lakh	₹6.01-12 Lakh	₹12.01-18 Lakh
Owner to be a Woman	Required (except for construction)	Not Required	Not Required
Interest Subsidy	6.5%	4%	3%
Maximum Subsidy	₹2.67 Lakh	₹2.35 Lakh	₹2.3 Lakh
Maximum Loan Amount	Upto ₹6 Lakh	Upto ₹9 Lakh	Upto ₹12 Lakh
Carpet Area	LIG: 60 sq.m.EWS: 30 sq.m.	160 sq.m.	200 sq.m.
PMAY-CLSS Validity	March 2022	March 2021	March 2021

In terms of the maximum loan period, it is the same for all the 3 categories i.e. loan tenure or 20 years, whichever is less. It is important to note that the subsidy will be calculated on the maximum term of the loan. Additionally, to avail of the benefits under the Pradhan Mantri Awas Yojana-CLSS, the property should be the family’s first. 

4. In-Situ Slum Redevelopment

Under this component of the PMAY program, the lands on which slums exist will be redeveloped with the help of private developers. A slum rehabilitation grant of ₹1 lakh/house will be provided for the slums which exist on central/state government lands. However, for the slums on private lands, no central assistance will be offered. 

What is the Rental Housing Scheme under PMAY?

Reverse migration of urban migrants was observed pan-India during the ongoing COVID-19 pandemic. Migrant laborers/urban poor live in slums or scattered settlements and with economic activities coming to a complete halt, moving back to their native places was a convenient option.

With an aim of providing ease of living to the blue-collar workforce, the government launched the Affordable Rental Housing scheme under the Pradhan Mantri Awas Yojana. This scheme will be implemented through 2 models:

• The private or public agencies will be incentivized to convert their vacant lands into Affordable Rental Housing Complexes.
• Existing government-funded vacant inventories will be used as ARHCs.

Industrial workers, laborers, students, urban poor, etc will be the beneficiaries of this scheme and will be implemented across statutory towns, areas notified by UP or state governments, notified planning areas. The scheme is also touted to proper investments in the rental and affordable housing sector, which can be a boot for the real estate sector.

Impact of PMAY on the Real Estate Sector

Since its inception in 2016, the Awas yojana has been instrumental in shaping the affordable housing dynamics in India. As far as the homebuyers are concerned, the interest subsidy of 6.5%, 4%, and 3% on LIG/EWS, MIG 1, and MIG II flats, respectively, translates to a large saving in terms of loan payment. Since the interest subsidy amount gets credited upfront to the borrower’s account, the remaining loan amount gets reduced and so do the EMIs. This has created a positive sentiment amongst homebuyers. 

Recently, the government extended the credit linked scheme to 2021. This step will not only lead to a surge in demand for affordable homes but will also bring cash flows to the real estate industry. More liquidity will give boost to the construction and the allied sectors such as steel and housing materials and will generate multiple job opportunities. 

How Well Has it Performed?

As per the latest estimates provided by the Ministry of Housing and Urban Affairs, 38.4 lakh houses have been completed out of 1.03 crore under PMAY-Urban. Additionally, 15.03 lakh houses are being constructed using new-age technologies. As far as the houses covered under the PMAY-Gramin are concerned, only 1.12 crores homes have been constructed as of September 2020. However, the total sanctioned homes are 2.44 crores. 

How RERA Makes PMAY More Successful?

Lately, investments in the affordable housing sector have been on a rise. This can be attributed to the Pradhan Mantri Awas Yojana scheme. The establishment of the Real Estate Regulatory Authorities across states has further instilled confidence amongst prospective homebuyers.

With multiple provisions in place, the RERA act ensures on-time project delivery. It also holds the developer responsible for any structural damage (up to 5 years). Provisions like selling properties based on carpet area and providing information access to buyers have made the home buying process easier for investors.  

Challenges Associated with PMAY

While the scheme has made it possible for the low-and middle-income families to purchase a house, it has invited low participation from the private real estate investors. Enlisted are some challenges that explain why private investors are not keen on investing in the Pradhan Mantri Awas Yojana scheme.

• Recently, the government reduced GST on affordable homes from 8% to 1%. While this comes as a relief to homebuyers, it hasn’t pushed housing sales. This can be attributed to the withdrawal of ITC to developers on construction materials forcing builders to raise the overall prices of the projects. 

• The definition of affordable homes under PMAY, in terms of price and size, does not fit well with real estate projects which are being developed in metropolitan cities like Delhi-NCR and Mumbai. The scarcity of lands and the cap on the carpet area not only push such projects to the outskirts of the city but also makes it difficult for the developers to offer projects at lower rates.

• As per Crisil Research, the government needs to infuse at least ₹1 lakh crore in the next 3 years to boost the affordable housing segment. However, the paucity of funds from equity investors and thin profit margins are some factors that are pushing the developers away.  

• The pandemic has further added to the woes of the real estate developers. First, there is a shortage of labor due to reverse migration. Secondly, the builders are finding it difficult to acquire cheap construction materials as the manufacturing units are still reviving. Both these factors can lead to a delay in the project delivery. 

Way Forward

Undoubtedly, the Pradhan Mantri Awas Yojana has benefitted a large number of low- and middle-income citizens by providing quality homes equipped with toilets, LPG, and electricity connections. However, a healthy ecosystem needs to be created for the private developers, who still feel reluctant to the PMAY scheme.

While infrastructure status has been granted to  affordable housing, granting infrastructure status to the real estate sector could be a pivotal move, enabling a plethora of developers to benefit from single-window clearance and access to priority funding at reduced costs. This will not only simplify the regulatory framework but also makes housing projects more financially viable for developers, encouraging them to invest in affordable housing schemes.

A collaborative approach between government and private stakeholders, including regular dialogues and feedback mechanisms, can help identify and address challenges more effectively. This includes, but is not limited to, streamlining the project approval process, improving the overall infrastructure system, broadening the income criteria under the scheme from the present 18 lakh, and increasing tax benefits for homebuyers in order to increase the demand for affordable projects.