Karnataka Government seeks solutions for 'Unsold' Affordable Homes

The government is struggling under the weight of unsold houses under the chief minister's one lakh affordable housing scheme and is exploring multiple options to reduce the burden on the state exchequer.

The Boston Consulting Group (BCG) recently met with Chief Minister Siddaramaiah and his deputy DK Shivakumar to recommend that the government provide beneficiaries with an interest subsidy of up to 5% and/or explore the possibility of allowing private developers to construct homes on their own, with the government providing between 50% and 70% of the land.

Data shows that the government is building 45,000 houses at an outlay of Rs. 11.2 lakh per house. The rest of the cost is covered by the government under the Pradhan Mantri Awas Yojana (PMAY) and other schemes. The govt is stuck with a burden of Rs. 3,700 crores because beneficiaries are struggling to pay.

Beneficiaries struggle to raise funds because of low CIBIL scores. For 10-15 years, banks and financial institutions offer loans at a high interest rate, ranging from 11% to 12%. An interest subsidy of between 3% and 5% has been proposed to mitigate this concern.

A higher chance of beneficiaries buying these houses conveys that the government will bear a smaller loss of between Rs. 60 crore and Rs. 170 crore per year. To raise the loan and pay the remaining amount, buyers will need to put down Rs. 50,000 upfront.

Another proposal is to return to the public-private partnership (PPP) model, which seeks to alienate up to 70% of government land allocated to or acquired by private developers in return for constructing houses. The government in charge of distribution would get these units once the work is done.