Task force on Promoting Affordable Housing - Naredco

<strong>Task</strong> Force on Promoting Affordable Housing
6. RECOMMENDATIONS : SUPPLY SIDE FINANCIAL INCENTIVES
As mentioned above supply side financial incentives are targeted towards reducing the cost of the
dwelling units through monetary interventions or concessions to housing providers so that they are
incentivised to target and increase the supply of dwelling units in the Affordable Housing segment,
thereby also further bringing down the costs of such dwelling units. A key area of concessions to
Affordable Housing could be through a set of concessions related to taxes and fees. According to a recent
McKinsey Global Institute study, taxes and fees account for approximately 27%
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of the final cost of EWS
and LIG houses. Reducing this burden will enable developers to provide cheaper houses for the EWS and
LIG. In a scenario where there are very limited numbers of dwelling units being built in the affordable
segment, these concessions would have a minimal impact on government revenue collections. Supply
side financial incentives also include direct monetary incentives such as capital grants and or viability gap
funding to Affordable Housing providers and targeting priority sector lending to the developers working in
this segment. Many of the recommended incentives would need to work simultaneously to have a
significant impact on the growth in the number of affordable housing units being constructed.
6.1 Development Related Charges
In the Rajasthan Affordable Housing Policy, several incentives are offered to developers like waiver of
External Development Charges (EDC), Building Plan approval fees, Land conversion charges, etc. Given
that there are very few Affordable Housing projects being developed currently, these concessions are
not expected to have a large impact in government revenues but can go a long way in encouraging the
growth in this sector, especially in certain states where the EDCs are quite high.While
these concessions should be prorated to the amount of floor area of Affordable Housing Dwelling Units to
make it targeted, alternate mechanisms will have to be developed by states governments, depending on
the quantum of the revenue gap created on granting these concessions to fund external development
without loading its costs on Affordable Housing projects. The <strong>Task</strong> Force strongly recommends States to
consider similar concessions in development related charges as best suited to their condition to
encourage Affordable Housing projects.
8 The example provided in Exhibit 3.4.9 of the report estimates 2.4% for stamp duty, 12% for development and approval charges, 2.9% VAT, 3% excise duty on
materials, 0.9% service tax and 5.4% income tax (the first three levied by the state government and the last three by the central government).
TASK FORCE REPORT 2012
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