Karnataka Government Looking for Ways to Address Affordable Housing Challenges in Karnataka

The unsold housing units under Karnataka's One Lakh Affordable Housing Scheme are putting pressure on the state's finances. Despite the goal of providing affordable homes to the urban poor, the number of unsold units is becoming a financial challenge. The government is now looking for ways to address this issue and ensure the success of the scheme.

At a recent meeting with Chief Minister Siddaramaiah and his Deputy DK Shivakumar, the government sought advice from the Boston Consulting Group (BCG) on how to address the issue. One of the main recommendations was to provide an interest subsidy of up to 5% for beneficiaries, aimed at making it easier for potential homeowners to secure loans. Another proposal was to allow private developers to build houses at their own cost, with the government providing 50% to 70% of the land needed for these projects.

The Financial Challenge: A Look into Costs and Payment Struggles

The government's current plan involves building 45,000 houses under the Pradhan Mantri Awas Yojana (PMAY) and other related schemes. With an estimated cost of Rs 11.2 lakh per house, the beneficiaries are expected to contribute between Rs 7.7 lakh and Rs 8.5 lakh, with the government covering the rest. However, many beneficiaries are struggling to raise the necessary funds, leaving the government with an additional Rs 3,700 crore burden.

One of the key factors contributing to this problem is the low CIBIL scores of potential beneficiaries. Because of this, banks and financial institutions are providing loans at high interest rates of 11% to 12% for periods of 10 to 15 years. The high-interest rates make it difficult for beneficiaries to repay the loans, resulting in a slowdown in the uptake of the affordable housing units.

Interest Subsidy Scheme

In response, the government has proposed introducing an interest subsidy ranging from 3% to 5%. This would significantly reduce the financial strain on beneficiaries and increase the likelihood of them purchasing the homes, thereby easing the burden on the state budget. The subsidy would cost the state between Rs 60 crore and Rs 170 crore per year, a smaller loss compared to the current situation but one that promises better outcomes for the housing scheme in the long run.

Public-Private Partnership (PPP) Model

Another strategy under consideration is to reinstate the Public-Private Partnership (PPP) model, which has been successfully used in states like Gujarat, Rajasthan, and Odisha. Under this model, the government would allocate up to 70% of the land required for housing construction to private developers. In return, the developers would build the houses and later transfer them to the government for distribution to beneficiaries.

This collaboration would allow the government to save on land acquisition costs, while private developers can benefit from the land monetization through both residential and commercial projects. Once the construction is completed, the developed units would be handed over to the government for distribution, helping to address the backlog of unsold units.

The PPP model has been viewed as a way to bring in the expertise and resources of private developers, which could help speed up the construction process and make housing more affordable. With private companies taking on a larger role in the development process, the government would be better positioned to manage the financial load, ensuring the housing scheme moves forward without placing excessive strain on state finances.

The government’s multi-faceted approach aims to resolve the affordable housing crisis in Bengaluru, combining state funding, private sector investment, and financial support for beneficiaries. The goal is to provide affordable homes to low-income families while easing the strain on the state’s finances.