Use incentives to build affordable housing: Minister

NEW DELHI - Housing and Urban Poverty Alleviation Minister Kumari Selja Monday said the budget has created a fiscal policy environment for growth of housing and hoped that builders would use the incentives to construct affordable dwellings.

She said investment-linked tax deductions to businesses that construct affordable housing should go a long way to motivate private developers to invest in small housing.

According to ministry estimates, there was deficit of about 2.5 crore houses for economically weaker sections and the gap was widening at the rate of 3.6 lakh units per year.

Kumari Selja said the proposed mortgage risk guarantee fund would make a positive impact in financial inclusion of the poor in housing.

Referring to demand of private developers to finance affordable housing, she said it would be met as permission had been given to the Housing and Urban Development Corporation (HUDCO) to issue tax free bonds of Rs.5,000 crore for housing and infrastructure.

The minister said HUDCO will be able to extend loans at competitive rates for core urban infrastructure and housing needs and added that the long-standing demand for placing mass affordable housing construction on par with infrastructure for purposes of capital had finally been accepted by the finance ministry.

Pointing out that role of financial institutions in lending to the poor was critical in creation of housing for the poor, she said the ministry would watch how the banks react to the concessions made to enable them to lend money.

Finance Minister Pranab Mukherjee Monday announced in his budget a proposal to liberalise interest subvention to further stimulate growth in the housing sector.

The minister said he was liberalising the existing scheme of interest subvention of one percent on housing loans by extending it to loans up to Rs.15 lakh where the cost of the house does not exceed Rs.25 lakh.

He said the government proposes to enhance the existing housing loan limit from Rs.20 lakh to Rs.25 lakh for dwelling units under priority sector lending in view of the increase in prices of residential properties in urban areas.

Pointing out that credit enablement of the economically weaker sections and lower income groups households was a serious challenge, Mukherjee said a mortgage risk guarantee fund would be created under Rajiv Awas Yojana to address the issue.

The minister also announced plans to allow tax free bonds of Rs.30,000 crore to be issued by various government undertakings, including HUDCO, in 2011-12 to give a boost to infrastructure development in railways, ports, housing and highways development.

Housing ministry officials said housing construction has a large multiplier effect on growth and leads to spin-off benefits to about 20 other related industries besides an eight-fold increase in employment.