Author
Gurbir Singh is an award-winning senior journalist with over 30 years experience. He has worked for BW Businessworld since 2008, and is currently its Executive Editor. His experience ranges from covering 'Operation Bluestar' in 1984 to pioneering coverage of the business of Media & Entertainment and Real Estate for The Economic Times.
The Mumbai Metropolitan Region Development Authority (MMRDA), has cleared a proposal to provide Mumbai’s premier central business district (CBD) of Bandra Kurla Complex (BKC) with an elevated corridor that will connect the BKC with the Eastern Express Highway (EEH). The approved project cost for the elevated corridor has been fixed at Rs 155.7 crore. The 1.6-kilometer elevated road approved by MMRDA’s executive committee will provide a dedicated connector to commuter traffic emerging from eastern suburbs like Chembur and Thane who use the Eastern Express Highway. The BKC has currently just one modern, multi-lane road from the Western side with an approach from Bandra. Those commuting from the East have to battle narrow, overcrowded lanes through the suburb of Kurla to enter the BKC. The project is also expected to provide seamless connectivity between Western and Eastern Suburbs, and the expected travel time to the BKC will be reduced by 30 minutes and distance by 3 km, the MMRDA has claimed in a release. Traffic snarls currently causing congestion in Sion and Dharavi areas are also likely to be reduced. The MMRDA is the planning authority for the development of the extended 4,355 sq kilometer Mumbai Metropolitan Region (MMR) that consists of 7 municipalities that include several satellite towns. The MMRDA, in addition, directly administers the BKC area as a civic body. In recent months, Mumbai’s serious problems of East-West connectivity have been substantially reduced with the opening of the Santa Cruz-Chembur Link Road (SCLR) and the 11-kilometer Metro Rail line that runs from Andheri West to Ghatkopar. Earlier, the east-west 6-lane connector between Jogeshwari and Vikroli has also eased traffic woes. The BKC will host Mumbai’s first International Convention Centre being constructed by the Mukesh Ambani-led Reliance Group. Better connectivity will add to the growth and prestige of the business layout, it is expected. The proposed elevated connector will start from G-Block in BKC and after crossing Mithi river, LBS Marg, and the Central Railway track pass through Somaiyya Trust Ground to join the Eastern Express Highway.The construction period of the project is of 3 years and the construction likely to commence soon, an MMRDA spokesperson has said.
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The resounding mandate for Narendra Modi and the NDA government has turned the negative sentiment in the real estate market, and the immediate perception is that home-buying will take off soon. The firm talk by the government in favour of pushing reforms and finance minister Arun Jaitley’s Budget giving importance to housing needs have further spurred sentiment. A recently released real estate ‘sentiment index’, developed by apex industry body, the Federation of Indian Chambers of Commerce and Industry (Ficci), and property consultant Knight Frank, shows a six- point rise in sentiment in the second quarter (Q2) of 2014 to 69, as against the previous quarter. The index is based on responses from realty stakeholders such as builders and financiers. The sentiment is high on expectations of speedy clearances and easier access to capital. The general belief is that home-buying will take off over the next six months, says the report. “The fact that political stability has a perceptible effect on the real estate sector is quite apparent from the optimism displayed by stakeholders after the elections,” says Shishir Baijal, chairman and managing director, Knight Frank India. But does the sentiment reflect in the actual offtake of homes in the country? Or is the stubborn recession in realty — a factor of unaffordable prices and excessive risk in delivery and finance sources — continuing despite the changes at the Centre?Sagging SalesMost surveys during the first half of the current calendar year indicate a slowdown in new project launches by builders as well as a drop in sales as consumers shy away from the market. According to online realty consultant proptiger.com, the property market in the National Capital Region (NCR) has deteriorated further in comparison to last year — launches have gone down by 50 per cent and sales volumes have declined by 22 per cent since 2013. The constant rise in costs, along with stagnation in income levels, has made the NCR unaffordable. More than 40 per cent of projects have been delayed, denting buyer confidence and subsequently dampening sales.Realty major DLF reported a drop in bookings, to 380,000 sq. ft in the first quarter of FY2015, from 440,000 sq. ft in the same quarter last year. Its net profit for the quarter ended June 2014 too fell 30 per cent to Rs 127 crore. Liases Foras Real Estate Rating and Research, a real estate research firm, reported a 9 per cent sequential decline in area sales across six major cities in the country. According to a report generated by the firm, NCR led the laggards with a 20 per cent decline, followed by Chennai and Hyderabad with 18 per cent and 13 per cent falls, respectively. The Mumbai metropolitan region was, however, almost stagnant with a 2 per cent drop in sales. The only market that bucked the trend to an extent was Bangalore. The city registered a 10 per cent growth in sales for the April-June 2014 quarter, claimed the report, while according to proptiger.com, the sales volume rose 6 per cent year on year. “Confidence is at a low. Some projects have just disappeared. For instance, 25 investor-driven projects were launched in Kanpur in 2007. They don’t exist anymore,” points out Pankaj Kapoor, managing director, Liases Foras. And as sales continue to drop, inventories are at an all-time high. In NCR, the inventory overhang (months taken to liquidate stock) increased from 39 to 53, while Hyderabad saw a rise from 43 to 47 months. The Pricing PuzzleRealty prices have followed a peculiar trajectory. Despite a stagnant market and poor sales, residential prices have moved up for most of the recessionary period between 2007 and 2013. According to National Housing Bank’s Residex, a residential index tracking the six-year period, housing prices increased in 24 major cities. The highest rise was recorded in Chennai (230 per cent), followed by Pune (135 per cent), Bhopal (123 per cent) and Mumbai (122 per cent). Only two cities witnessed a fall in prices — Kochi (-15 per cent) and Hyderabad (- 7 per cent), with both seeing a surfeit of supply with a rash of new projects.Mumbai-based developer Rustomjee opened its 127-acre township housing project Urbania in Thane in 2011 at Rs 6,800 a sq. ft. “It appreciated 20 per cent year on year, and we are now selling at Rs 10,500 a sq. ft,” confirmed Saurabh Naik, deputy general manager-sales, Rustomjee. The Liases Foras quarterly review shows that the weighted average price for the first quarter was largely stagnant, except in the case of four cities where it moved up marginally. Chennai showed a 4 per cent increase, while there was a marginal fall in the case of NCR. What is, however, interesting is that new launches across markets have been priced lower compared to last year. “Investors clearly have no appetite for new purchases. Sales are low, and prices are not rising. There is nothing in it for them,” says Kapoor of Liases Foras. “However, cities that are showing some activity and sales — Bangalore, Chennai and Pune — are witnessing fairly intense private equity (PE) investment, most of which is going into land-buying,” he adds. break-page-breakThere are several theories on why developers don’t slash prices to stoke fresh demand. Builders say that 60-80 per cent of a project’s cost is just the cost of the land. This makes flexible pricing difficult. Mumbai-based builder Paras Gundecha says the approval procedure for construction escalates costs by up to 20 per cent. While that is the builders’ side of the story, others believe they are never really under pressure as investors are willing to wait; and construction, in any case, is paid for by the periodic booking of flats. “It is the government that discourages any downward movement of prices. Ready reckoner rates for property, based on which stamp duty is determined, continue to be pushed up whether or not it is justified by the market; and former finance minister P. Chidambaram’s policy was to treat the difference between reckoner rates and actual realisation as ‘income’ in the hands of the seller,” says Kapoor. Besides this, there is always an element of risk in advance booking as policies can change and laws can be redefined at any time. The order to not issue construction certificates to buildings falling within the 10-km radius of the Okhla Bird Sanctuary has put projects by Jaypee Infrastructure and 40 other builders in NCR in limbo, while in north Mumbai, residents continue to live in a state of uncertainty, as the dispute over their land, which is said to be ‘reserved forest’, continues. Light At The End Of The TunnelIs the fairly bleak landscape likely to brighten up in the near future? The proptiger.com report predicts that the second half of calendar 2014 will witness a revival in the market. But except for a few peripheral markets, it is unlikely that there will be any price cuts in residential housing. Besides, the real estate market is not driven by sentiment. It is, therefore, a long haul, and the economy will have to see a revival in manufacturing and income, and a higher gross domestic product before there’s any substantial increase in home-buying. Some analysts see commercial realty picking up first. Property brokers and consultants DTZ sees greater leasing activity from corporate groups leading to a turn in the fortunes of the office segment. NCR saw the demand for office space fall 18 per cent over the previous quarter, but it rose 11 per cent year on year. Mumbai held its own with 1.03 million sq. ft taken up in the second calendar quarter as compared to 1.05 million sq. ft in the first. “The uptake of office space in Bangalore grew sharply in Q2, with a number of large deals acround Outer Ring Road and Whitefield. The total office uptake in Q2 was 3 million sq. ft, representing a 32 per cent rise quarter on quarter,” says a DTZ report. Baijal concedes that though sentiment has improved, and there have been “more calls”, it hasn’t translated as yet into transactions. For home-buying to take off, current economic indices will have to see major changes. “Interest rates will have to go down; for that, inflation will have to be bridled. More jobs and higher GDP growth are key ingredients. It is only then that the market will take off. It will be 12 to 14 months before we see a real pick-up,” says Baijal. gurbir@businessworld.in twitter: @gurbir110(This story was published in BW | Businessworld Issue Dated 08-09-2014) ]]> ]]>
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With the central government estimating the shortage of homes in the country to be around 27 million, the need of the hour is mass, affordable housing for the middle and working classes. To encourage investment in this segment by the private sector, the government has over the years offered a slew of sops for ‘integrated township’ projects, including foreign direct investments. Integrated townships must have a layout of a minimum of 100 acres to qualify for government clearance. Typically, these towns offer education facilities, commercial complexes and sometimes even malls within the campus. With planned open areas and sustainable ecosystems, these usually offer a better quality of life than stand-alone buildings. Rajasthan and West Bengal have relaxed the minimum 100-acre norm for township development to encourage more residential construction. On the other hand, Maharashtra has made it mandatory for all projects to reserve 20 per cent of the built-up area for homes for the economically weaker sections (EWS).Lately, private equity funds have been showing great interest in the residential areas of these townships for their sheer scale, quick uptake and the relatively low risk. However, it is not the gated communities of the rich but the mass, affordable products that will be the future of housing in India.BW | Businessworld visited a few sites and tried to understand how developers are approaching the task of housing millions with some ground-level reporting. Upwardly MobileUrbania is clearly targeted at the upwardly mobile. The Rs 4,000-crore Rustomjee project, developed on what was once agricultural land on the outskirts of Mumbai’s suburb of Thane, has just 19 one-bedroom apartments of 432 square feet each. Priced at Rs 65 lakh, they all sold out in a jiffy. Most of the 4,000 units the project will deliver are aimed at young professionals working in corporate outfits on the periphery of Mumbai or Navi Mumbai. At the top end of Urbania is a cluster of 12 buildings with two- and three-bedroom apartments priced between Rs 1.5 crore and Rs 2.25 crore. A NEW MODEL: Nanded City, near Pune, will hold 18,000 homes when complete (Photographs by Umesh Goswami)The 127-acre proposed township is split in half by the Thane-Nashik Highway, but it has all the trappings of a self-reliant township with 50,000 sq. ft of commercial and retail shopping in the pipleline, a dedicated water-supply system with a massive water reservoir, a police station and an alliance with the UK-based Cambridge University to set up a school in the complex. Such offerings make the project very attractive. However, it is moving slow. Work on Urbania commenced in 2007, whereas it opened for booking only in 2011. Saurabh Naik, deputy manager-Sales, Rustomjee, says that about 500 flats have been handed over, while 770 are expected to be completed this year. The sales are slow, perhaps, because of the high prices and strong competition from similar projects nearby. Besides, the prices too have been steadily going up. The project opened at Rs 6,800 a sq. ft in 2011, but the booking rate today has crept up to Rs 10,500 a sq ft. “Yes, sales velocity has dropped. In April, we sold zero,” admits Rustomjee chairman Boman Irani. He says costs have climbed, but insists that slow uptake is because the customer has endless choice today. “The home buyer has many more options today. He takes time to choose the location and ambience he likes,” adds Irani. Irani takes umbrage at the suggestion that builders only construct middle and luxury homes, leaving the masses to fend for themselves. Pointing to his Rs 3,500-crore joint venture with the Evershine Group in Mumbai’s suburb of Virar, he says he is developing 4,000 homes spread over 218 acres. “We opened bookings at Rs 2,000 a sq. ft a few years ago; it has now gone up to Rs 5,000. We are offering value-for-money homes in Virar,” says the Rustomjee chief. The bulk of the offerings is in one-room category — between 360 and 412 sq. ft — that initially opened at Rs 8 lakh. Today, these flats are sold at Rs 32 lakh, whereas a 580 sq. ft two-bedroom flat is sold at Rs 50 lakh. Two-pronged StrategyAt the other end of the spectrum is Vastushodh Projects, a developer marketing ‘affordable’ homes. Over the past four years, the company has developed two brands of housing projects in and around Pune. The housing units at Anandgram are priced between Rs 5 and Rs 15 lakh, while units at Urbangram are in the range of Rs 15 lakh and Rs 30 lakh. BW visited two Urbangram projects on Pune’s periphery. Approaching the cluster of buildings at Kirketwadi was a nightmare, with bumpy roads and narrow alleyways, but once there, the 226-apartment layout was a neat, well-paved set of buildings that had just been occupied. There is even a small, non-functional swimming pool awaiting water supply. The most expensive flat in the project, a crunched three-bedroom, hall and kitchen (BHK) measuring 1,200 sq. ft, costs Rs 42 lakh. The one and 2 BHKs are cheaper at Rs 24 and 32 lakh, respectively. “When we opened for bookings, we sold out in 24 hours,” says Nitin Kulkarni, director-Technical, Vastushodh Projects. “We don’t believe in benchmark pricing; our pricing is cost-plus, and we keep costs under control by personally monitoring the sites,” he says. Pointing to the genset for power back-up in the compound, he says: “At the same time, we don’t skimp on quality.”Vastushodh’s first project, Anandgram, at Yevat, about 45 km from Pune, was aimed at those further down the income ladder. It is designed to serve autorickshaw drivers, blue-collar workers and even street vendors who can’t produce income documents. Having handed over 622 units, with the bulk selling at Rs 8 lakh, Anandgram has become a brand for good budget homes on the periphery of a city. It is being replicated with townships coming up in Baramati, Kolhapur and even Boisar, a town on the Mumbai-Ahmedabad trunk line. break-page-breakAnandgram at Yevat was funded at the special purpose vehicle-level by Avenue Venture Fund, which took an 80 per cent stake in the project for Rs 22 crore. The promoters, however, have the option to let the VC go at twice its investment — Rs 44 crore — in three years. Going by their growing business, the promoters are confident of being self-sufficient to exercise the option. In 2010, Vastushodh had one site and 600 homes under construction. Four years later, it has grown to 14 locations with 1.3 crore sq. ft and 15,000 homes under construction. “When we touch one lakh homes, hopefully in a year’s time, we will be ready to divest equity in the parent company and go for scale,” says Kulkarni. Illustrating the ‘affordable’ model at another site in Kondhedhawde, a Pune suburb, where Vastushodh has handed over 165 flats, Kulkarni says: “When bookings opened, it was like a fish market, with people hurling cheques at us. We closed in four hours, but we were forced to create a waiting list of 575 applicants.” The reason was simple: affordable price and good quality. The Kondhedhawde project offered 1BHKs at Rs 14 lakh and 2 BHKs at Rs 20 lakh in the vicinity of Pune. A visit to the project revealed spacious corridors, functional but crunched interiors to allow more bedrooms, and a functional swimming pool, too. The downside in both its projects was the excessive paving in the compound area that prevented development of more green patches and water run-off areas.A Self-contained CityNear Pune, a different model is being developed to target the middle class. Seven hundred acres — adjoining a village called Nanded — is being developed as Nanded City, a 49:51 joint venture between farmers and the Magar family of Magarpatta City, by the Nanded City Development Corporation. With over 5,000 flats handed over, the project now has the feel of a large, independent town. A drive along the 5 sq. km layout reveals under-construction commercial complexes, two schools and a dedicated fire brigade unit. The roads have been laid out with street furniture at corners, and excellent landscaping of thick, manicured shrubbery that forms a pollution filter between the roads and the building compounds. Sales officer Xerxes Amin took us to Shubh Kalyan, a 22-storey building, and the tallest in the project. It offers 3BHKs (1,557 sq ft), priced at Rs 84 lakh. The construction and interiors are without frills, but the flats offer fair quality, are functional, and with spacious common areas at the ground level. HIGH END: Urbania is a self-reliant township on the outskirts of ThaneAt Nanded City, the options for customers are many. The smallest, 570 sq. ft flats, are available at Rs 35 lakh. A comfortable 2BHK in Madhuvanti, measuring 937 sq. ft, costs Rs 52 lakh. Currently, bookings are on at Rs 4,500 a sq. ft, and one can see robust interest. “We are doing around a 100 transactions a month,” claims Amin. When completed, the project will hold 18,000 homes. ‘Buy a Flat, Get a City Free’ proclaims a marketing slogan at the site office. The one downside is: there is no transfer of common areas and maintenance tasks to residents’ societies, as should be the natural process. Nanded City will continue to hold the land and common areas in perpetuity and remain in charge of maintenance. A fixed fee of around Rs 3 lakh for ‘lifetime’ maintenance is also collected at the time of booking. It’s only a matter of time before the Magars face a challenge on this front.Eastern PromiseIn the east, another large corporation is implementing India’s largest mass housing project. In 2007, Shapoorji Pallonji & Company was allotted a 150-acre plot at Rajarhat for developing a township of budget homes. Disputes kept the project inactive until last February when the state cabinet approved the terms, and SP Sukhobristi in New Town, Rajarhat, finally got going.Executed in alliance with the West Bengal Housing Infrastructure Development Company (WBHIDCO), the Rs 1,500-crore project is on its way to deliver 20,000 homes. Of these, 12,000 units will be one-bedroom flats (320 sq. ft) aimed at low-income earners and priced at Rs 14 lakh, while 8,000 units will be 2BHKs of 480 sq. ft for middle income earners and priced at around Rs 25 lakh. Shapoorji claims the open space in the township will be as much as 73 per cent of the project area. As an integrated township, the builders are required to provide sports clubs, community centres, amphitheatres, primary schools, a health centre, as well as commercial complexes and corner stores. Good BusinessTwo significant developments have taken place in the ‘affordable’ segment. Developers are realising that building budget homes, far from being a punishment or a CSR activity, is a viable business model. Significantly, those like Vastushodh have have undertaken more such projects after their initial foray in the budget segment. Vastushodh’s Kulkarni says the cost-plus mode of pricing, with a 40 per cent outlay for land purchase, has also given the company a 20 per cent margin. Listed realtors are also lining up to tap this opportunity. Mahindra Realty, for instance, has launched a budget brand called Happinest that will offer one- and two-bedroom homes ranging from 350 sq. ft to 650 sq. ft in Chennai and elsewhere. These will cost no more than Rs 20 lakh. The other development is the availability of housing finance. Earlier, banks were wary of lending to low-income segments because of the perceived high risks. They have, however, now learnt that these income groups are less prone to defaults. Besides, a whole crop of private housing finance companies has emerged with its sights on low-income groups with loan requirements in the range of Rs 5 to Rs 15 lakh. These include Micro Housing Finance, India Shelter Finance, Shubham Finance and Aadhar Housing Finance. These lenders don’t insist on detailed documentation and have their own ‘informal’ methods of determining ‘safe’ borrowers. Clearly, the future lies in ‘affordable’ homes. gurbir@businessworld.com twitter:@gurbir110 (This story was published in BW | Businessworld Issue Dated 08-09-2014) ]]>
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Urban India is on the move. It is estimated that around 30 rural dwellers relocate to cities every minute. A McKinsey Global Institute (MGI) study released in 2011 predicted that the population in Indian cities will go from 340 million in 2008 to 590 million by 2030, accounting for 40 per cent of India’s total population. In 2011, the Union Ministry of Housing and Urban Poverty Alleviation estimated the shortage of houses in the country at 24.7 million. Monitor Deloitte, a consultancy specifically working on the private affordable housing segment, indicates that the realistic and active demand from potential buyers of homes is a staggering 15.1 million. With India’s rapid urbanisation, probably the fastest in the world after China, ‘homelessness’ is only going to increase. The population of slum dwellers in the country has shot up from 52.37 million in 2001 to 65.5 million in 2011, housing and poverty alleviation minister M. Venkaiah Naidu told the Lok Sabha recently. Maharashtra topped the list with a slum population of over 11.8 million. Aware of the looming crisis, states have been pushing for mass-housing schemes at affordable prices. The largest-ever housing scheme by the Delhi Development Authority (DDA), which opened for applications recently, will have over 26,000 flats — mostly one-room apartments, priced at around Rs 15 lakh — spread over Rohini, Narela and Dwarka. On the other hand, the Mumbai Metropolitan Region Development Authority (MMRDA), which experimented with rental housing, has had little success. The 3,000 flats in Virar that were developed as rental stock will now be sold as low-income homes. THAT SINKING FEELING: To improve the lot of city dwellers, drainage and sewage infrastructure will need attention (Photograph by Umesh Goswami)At the central level, the government has done precious little to address the situation. Schemes like the Rajiv Awas Yojana and the proposed regulation Bill, aimed at protecting consumers from rapacious builders, have been non-starters. The annual budgets of the previous UPA government committed piddling funds and very little perspective. In this context, the NDA government’s recent budget — comprising a slew of measures intended to generate investments for the housing industry and address the problems of urbanisation — was a welcome change.To spur investment in construction, finance minister Arun Jaitley’s budget has reduced the built-up area threshold from 50,000 sq. metres to 20,000 sq. metres and the minimum investment limit from $10 million to $5 million for foreign direct investments (FDI). He has also legalised Real Estate Investment Trusts (REITs), which will be a significant source of funding for builders. Additionally, the tax exemption on interest on home loans has been raised from Rs 1.5 lakh to Rs 2 lakh.He has also alloted a sum of Rs 7,060 crore to develop 100 ‘smart’ cities with modern connectivity, education and employment opportunities. But, will it be enough?A Hundred Smart CitiesThe existing cities are splitting at the seams; layer upon layer has been built without a plan to accommodate a galloping population. The constant migration to cities has put energy, transportation and housing resources under strain, so much so that life in a city today is a nightmare. To bring method to this madness, the government and planners are working on creating new cities and turning existing ones into satellite cities. It is in this context that analysts have come up with the concept of ‘smart’ cities. There is, however, no clear definition. Jaitley too did not provide any in his budget speech. Broadly speaking, a smart city is one with good connectivity, both in terms of physical transportation as well as digital. The cities should have amenities that make life comfortable and less stressful for urban dwellers. Business consultancy Frost & Sullivan, having studied the trend of smart cities internationally, identified eight key factors that define a smart city: smart governance, smart energy, smart buildings, smart mobility, smart infrastructure, smart technology, smart healthcare and smart citizens. A city has to qualify at least on five out of eight parameters to be declared ‘smart’; those qualifying on just a few can only be called ‘eco-friendly’ cities.Frost & Sullivan expects around 26 global cites to meet these rigorous ‘smart’ norms by 2025. Of these, 50 per cent will be in North America and Europe. Amsterdam, for one, has been ahead in implementing smart and intelligent systems, executing projects in energy and mobility and good governance. The consultancy estimates the potential of the smart city market globally at $1.5 trillion. Back home, the NDA’s plan for 100 ‘smart’ cities is a continuation of the Gujarat discourse — under which 24 new ‘smart’ cities, most of them along the Delhi-Mumbai Industrial Corridor (DMIC), were planned —initiated by then chief minister Narendra Modi. However, when and how the funds will be raised to develop these 100 cities has been left to conjecture. The outlay of Rs 7,060 crore, barely $1.15 billion, may not be even be sufficient for the planning process. The satellite cities project too has been plodding along for some time now. The Mumbai Metropolitan Region, a 130-km multi-nodal corridor running in a semicircular arc from Virar in north Mumbai to Alibaug in the south, is said to have satellite cities in the Vasai-Virar region, Kalyan-Bhiwandi, Panvel and Uran areas. High-speed rail and road connectivity is also being planned along this arc. If these plans turn into reality, Mumbai can hope to see a major decongestion process as these new townships become alternative settlement magnets for the migrants. “Land for the corridor has been identified, and the acquisition process has begun; but it is a long way from implementation,” concedes U.P.S. Madan, the MMRDA commissioner handling the project. FOR A SMOOTHER RIDE: To create smart cities, the government will have to spend more on transport options such as the monorail (Photographs by Subhabrata Das)We are indeed a long way from smart cities. For instance, a new airport planned at Navi Mumbai — a crucial link in the chain that will herald Mumbai’s progress — was embroiled in environmental disputes for five years before crossing the hurdle. But for the past two years, the state government has been unable to acquire land for the project in the face of high demands for compensation. A final package — offering 22.5 per cent of developed land in exchange for the farm land acquired for the airport — has been hammered out recently, but it remains to be seen whether fresh glitches emerge. Meanwhile, there is no new airport on the horizon. Similarly, nothing happened to the small village of Dholera that was declared a ‘smart’ city site by Modi. Planned as a 903 sq. km layout, it was billed to be twice the size of Mumbai. It even found mention in former finance minister P. Chidambaram’s budget speech last year. After years of effort, Dholera remains the village it always was. In the current context of land acquisition laws, and without a consensus on the need for rapid urban expansion, the call for 100 ‘smart’ cities will remain little more than a slogan. break-page-breakHousing For AllOne of the keys to building good cities is providing homes. The finance minister in his budget speech and the NDA government in repeated pronouncements have committed to housing for all by 2022. While rural folk are not the best housed, over the years they have been able to find do-it-yourself answers to shelter. In the urban swathes land comes at a huge premium, thereby making the problem of shelter acute. Housing for all by 2022 is obviously a tough call. The problem is not lack of demand. There is a massive shortage of 24.7 million homes. The problem is also not lack of supply. Between Mumbai and the National Capital Region (NCR), the inventory stands at over 4 million sq. ft of residential space. The real problem is that these homes are unaffordable. In fact, there is runaway demand at affordable prices. The Maharashtra Housing and Area Development Authority (Mhada) in Mumbai sells 5,000 homes priced between Rs 15 and Rs 50 lakh every year through a lottery system. To illustrate the kind of demand these homes generate, sample this: the housing body received 87,647 applications for 1,244 houses put on the block in June 2013. For a single one-bedroom flat, priced at Rs 30 lakh, at Pratiksha Nagar in the middle-income group, Mhada received 1,500 applications! But when the same 500 sq. ft flats are priced at Rs 1 crore by private builders, the demand evaporates. The other problem is that the private sector does not construct enough homes in the mass, affordable segment as the margin for these products is thin and marketing costs high. Ashish Karamchandani, CEO of Deloitte Monitor, estimates that over the last decade only 78,000 units were sold in this budget category that has a potential demand of Rs 9 lakh crore!There is no robust data on how much government housing bodies are doing in this area; but it is nowhere near what needs to be done. DDA, which is serving the NCR, is among the largest public sector players in mass affordable housing. It has 44 ongoing schemes, currently open for bookings. The Bangalore Development Authority follows a do-it-yourself model, selling land in developed layouts and leaving house-building to the land buyer. It claims to have developed 62 layouts and made about 2 lakh site allotments since 1976. In Mumbai, MHADA has been averaging 5,000 budget homes annually, whereas the demand is ripe for unloading 100,000 every year. In the post-liberalisation phase, in 2005, the central government redefined its housing policy, recasting itself in the role of ‘facilitator’ from that of a ‘builder’ of homes. According to the policy, the government would provide land and other infrastructure, and leave construction and marketing to private developers. It hasn’t, however, worked out well as builders prefer operating in more lucrative segments such as middle-income and luxury. And, they refuse to drop prices despite a huge glut of housing stock. The Issue Of LandProminent Mumbai-based builder and promoter of the ‘Rustomjee’ brand, Boman Irani, says the flexibility for builders to drop prices is minimal due to “high cost of land, increasing cost of building infrastructure, construction material and permissions”. He claims 38 per cent of all capital investment in a project goes to government taxes, with last-mile taxes — service tax, stamp duty and labour cess — accounting for as much as 11 per cent. “Cut stamp duty on homes from 5 per cent to 1 per cent and ensure all approvals in three months, and we can drop prices by 25 per cent,” says Irani, who is also vice-president of the Maharashtra Chambers of Housing Industry (MCHI). In this pack of cards, land is the ace. It is not only the most expensive but most elusive too. Anecdotal evidence collected from builders shows that in metropolitan areas, the cost of land makes up about 70 to 80 per cent of the total project cost, while in tier-II and tier-III cities, it is in the range of 40-50 per cent. Such a high fixed cost doesn’t allow builders to drop prices of apartments. On a larger plane, land acquisition represents a huge challenge for the government or any development authority building townships. The Land Acquisition Act 1894, which was in force until last year, was challenged by farmers and landholders for its draconian provisions of eviction in case of acquisition for public purpose under the ‘urgency’ clause and the pittance it allowed in the name of compensation. It did not help the government acquire land and, instead sparked social movements and unrest. The old Act has now been replaced with the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, which has enhanced compensation to twice the market value for urban land and four times for rural land. It also made the consent of the landholder necessary for non-government projects. The Jairam Ramesh-piloted Act has not, however, solved the crying need for land for rapid urban development. “It only freezes land acquisition through lengthy procedures and the imposition of high costs that render projects unviable,” says Chandrajit Banerji, director general, Confederation of Indian Industry (CII). Gujarat, in September 2009, enacted its own law with the Special Investment Region (SIR) Act, but that too has been unable to tackle bottlenecks in land acquisition.There have been some brave attempts to cut through the clutter. The Ahmedabad Urban Development Authority, for instance, has institutionalised the voluntary surrender of land by owners on the outskirts of the city. The development board, after aggregating the land, putting up roads and water lines, etc., returns the balance land to the original owners. The land owners, sensing a sizeable appreciation in the value of the land with urban layouts, are only too happy to participate. This process bypasses the land acquisition stage completely.But even if the government has the land, where would it get money to build infrastructure? McKinsey Global Institute estimates India will have to spend $2.2 trillion on cities over the next 20 years, including $1.2 trillion in capital investments. Japan has been contributing to India’s urban infrastructure development through the Japan International Cooperation Agency, which lead-financed the Delhi Metro and the Delhi-Mumbai Dedicated Freight Corridor. India also partnered with the US to launch the $10-billion dedicated Infrastructure Debt Fund in 2010. The private sector invested $225 billion or roughly 12 per cent of GDP, between 2007 and 2012, in urban infrastructure; but a steady stream of investors has exited in the last two years citing lack of returns and ever-changing norms of compliance. Meanwhile, the amount of money required to fix the urban landscape continues to rise.Despite the bleak scenario, the march of urban India is irreversible. By 2030, India will have 68 cities with more than 1 million people, 13 cities with more than 4 million, and 6 mega-cities with 10 million or more, of which Delhi and Mumbai will be among the five largest in the world. Cities are not about congestion and pollution alone. They are about high income levels and powering the growth of the country. MGI forecasts that cities will generate 70 per cent of new jobs created till 2030, 70 per cent of the GDP, and a four-fold growth in per capita incomes.Smart cities are the only future we have. We have to invest in them in a big way. gurbir@businessworld.in Twitter: @gurbir110(This story was published in BW | Businessworld Issue Dated 08-09-2014)
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Apex bodies of real estate developers never tire of pointing out that the housing and construction industry is crucially poised not only as a large employment generator, but a central cog that provides momentum to a large maze of inter-related industrial and manufacturing units. The developers thus claim that the housing and realty sectors provide direct employment to 18 million workers directly and as many as 80 million indirectly. Besides this, a large number of upstream industries such as steel manufacturing, wood, plastic, cement and glass are directly dependent on the performance of the real estate industry. It is therefore no surprise that the NDA government is keen to breathe some life into the stagnant realty sector by stoking demand for housing. Finance Minister Arun Jaitley has done this through a slew of concessions that will put more money in individual consumers’ hands and make it more attractive for them to invest in housing. Two significant measures will put more money in the hands of a large number of people. First, the FM has enhanced the threshold level for income tax for individual tax payers from the earlier Rs 2 lakh to Rs 2.5 lakh a year. This has been a bit of a disappointment as it was widely expected the exemption limit would be raised to anything between Rs 3 to 5 lakh per annum. Second, he has raised the Public Provident Fund (PPF) ceiling from the current Rs. 1 lakh to Rs. 1.5 lakh in a financial year. PPF is one of the most popular tax-saving schemes since the PPF corpus is tax-free at all three stages. The investment is eligible for tax deduction under Section 80C, and the interest earned is tax-free. Besides these, the finance minister has made it more attractive to raise home loans by increasing the exemption limit of home loan interest payable from Rs 1.5 lakh to Rs 2 lakh and increasing the exemption under section 80C, which includes payment of the principal of the home loan, also from Rs 1.5 lakh to 2 lakh. Says Surabhi Arora, Associate Diector – Research, Colliers International: “This is a positive move. Increase in disposable income in the hand of common man will in turn increase the spending power and boost domestic investments. This increase will promote home ownership thereby giving a boost to the housing sector and other related industries like steel, cement, brick, wood, glass.” “The increase in interest exemption of Rs 50,000 for loan availed on self-occupied house property, will give a savings of Rs 5,150 to individuals annually and Rs 5,665 for the superrich,” points out Vineet Agarwal, director of the management consultancy KPMG. In another significant measure, the finance minister has included slum redevelopment in the list of eligible projects that can be undertaken by companies under the corporate social responsibility (CSR) programme. This is likely to provide some funding for providing legal and affordable housing to those living in urban slums. Says Boman Irani, Chairman and MD of Mumbai-based Rustomjee Developers, “Slum Rehabilitation coming under CSR will have significant impact on Mumbai residential market as it will encourage more SRA housing. This will be a great boost for Mumbai where 60 percent of the population still lives in slums “However, there are those who feel that more measures that were necessary have been missed out than have been included. According to Prashan Agarwal, co-founder of PropTiger.com, an online real estate advisory service, “The budget while it clearly spells out the initiatives to drive up demand for housing, has been silent on measures to improve supply of affordable housing – like the real estate bill, land acquisition bill, single window clearance, excise duty reduction on cement/steel – the key divers for construction cost.”
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The housing and real estate sector, reeling for the past few years with stagnation and lack of growth incentives, finally saw some real movement in Arun Jaitley’s budget. Real Estate Investment Trusts (REITs), which have been debated with even some rudimentary forms introduced, may now see the light of day. FDI norms for the property market also saw some relaxation. Overall, there were distinct signs of the Modi government rising to the needs of urbanization by rolling out elements of a nation-wide city development programme. In the budget, REITs, which own and manage a portfolio of properties acquired through a pool of funds raised from investors, will now get pass-through status and other incentives. A pass-through entity does not have to pay corporate tax as it is transferred or ‘passed through’ to its stakeholders. REITs traditionally invest in large leased commercial properties that have ‘A’ class tenants, and thereby provide good returns to their investors. On the flip side, developers can raise funds in a tight market by selling complete and leased properties to REITs. Since they are typically listed, REITs also provide easy exits for investors at their choosing. Commenting on the announcement on REITs, Surabhi Arora, Associate Director of Colliers International, said, “the introduction of REITs would be beneficial for the Indian market as they not only provide efficient access and flexibility to raise capital but also provide an alternative exit option to the investor. The introduction of REITs in India would spell scores of opportunities for developers / private funds / and financial institutions as they can be used as an exit vehicle to rotate funds as per the requirement.”Anish Sanghvi, associate director, PricewaterhouseCoopers (PwC), however sounds a warning note: “While a pass-through structure to facilitate single-layer taxation is a welcome change, no relief has been granted on the DDT leviable on the SPVs (holding real estate assets) distributing dividends to REIT/InvIT. This could potentially be a big dent in the Business Trust (BT) economics, since the SPVs are unlikely to be leveraged substantially and would therefore need to distribute dividends rather than pay interest.”The Modi-Jaitley budget also looks ahead to the needs of urbanisation by planning for “100 smart cities” with an allocation of Rs 7,060 crore presumably for infrastructure and planning, along with a boost to affordable housing. To ensure the erratic FDI pipeline is well fed, FDI norms in realty have been relaxed to make the sector attractive for foreign investors. More specifically, the requirements of minimum development area for a project to be eligible for FDI has been reduced to 20,000 sq metres from 50,000 sq meters earlier, while the minimum capitalisation requirements for wholly-owned subsidiaries for FDI projects has been cut to $5 million from $10 million earlier. These investments will have a three-year, post-completion lock-in. To encourage FDI to add to the stock of affordable housing and move builders away from their penchant for luxury and upper middle class housing, the finance minister has provided that real estate projects with at least 30 percent cost allocated to low cost affordable housing projects should not be subjected to the limitations of capitalisation, minimum area requirement and lock-ins. These investments will also be subject to a lock-in period of 3 years after completion of the project. Reacting to the slew of measures for the housing and realty sectors, Pradeep Jain, chairman of Parsvnath Developers, said: “Funding had always been a concern for us as developers. Foreign investors were also shying away due to ambiguity in rules. With implementation of REITs and relaxation in FDI norms, the problem of fund crunch will get mitigated.”Low cost housing, a demand for urban clusters, has been given a boost with an allocation of Rs 4,000 crore for the National Housing Bank. This will be routed as cheap credit for affordable housing projects for the urban poor.
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Broadcasters, who had pushed TAM Media to change from a weekly to a monthly release of audience figures are feeling the heat and may go back to the weekly arrangement. There have been frenetic behind-the-scenes negotiations between advertisers, broadcasters and ad agencies, and while no deal has been reached yet, those in the know in the industry said that by Wednesday (17 July), the broadcasters will accept a compromise and go back to TAM’s weekly audience figures. “While advertisers can make an alternative media plan based on print and other platforms, recessionary conditions will not allow broadcasters to hold out for long,” an ad agency executive told BW on condition of anonymity. The uneasy truce between the broadcasters, advertisers and ad agencies over how TAM Media audience measurement ratings will be circulated had broken down on Friday last (12 July) with as many as 25 large advertisers pulling out advertisements from television platforms. The advertisers who have decided to pull the plug include big names such as Hindustan Unilever (HUL), P&G, Dabur, Colgate and Marico. Read Also: Broadcasters Go After TAMThe action by the advertisers follows a group of big TV networks prevailing upon the rating agency TAM Media into releasing monthly audience figures instead of the earlier weekly norm followed by TAM. The broadcasters also got TAM to agree to release absolute audience numbers instead of the earlier percentage figures. While broadcasters say that they have been forced to opt for the monthly ratings formula because TAM figures showed wild swings in the weekly format, advertisers point out that monthly ratings are meaningless as they cannot make a media plan or strategy with insufficient data. In an unusual show of aggression, advertisers have hit back by cancelling advertising. However, TV channels have continued to play out ads as these are part of earlier contracts. Advertisers in turn have thought out their action for a long-term battle and have blocked fresh Release Orders (ROs) which they hope will bring the broadcasters to heel. Among the big networks that had petitioned TAM for monthly data include Multi Screen Media (Sony), Zee Entertainment, Star India, Bag Films & Media, the Network18 Group and Times Global Broadcasting.gurbir(dot)singh(at)abp(dot)in gurbir1(at)gmail(dot)com(at)stayalive
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Home buyers will welcome the Union Cabinet’s approval for the Real Estate Bill. It has been in the works for over two years now. The sudden rush to make it a law seems to be — like the Food Security Bill — necessitated by the looming elections and the ruling party’s bid to please the harassed masses. It is yet to be seen whether the government means business as a Cabinet nod will not automatically transform the bill into legislation. There is a long queue in Parliament of pending bills; and there is no guarantee the Real estate Bill too will continue to languish – a victim of party politics – like so much other well-intentioned legislation. If the government wants to put its money where its mouth is, it should promulgate the Bill as law through an ordinance.The main thrust of the government’s move is to bring in transparency and prevent customers being cheated of their life savings. Among the measures proposed is the creation of a Real Estate Regulator for the housing sector, and mandatory registration of projects before builders can launch sales. Builders will also be required to disclose all project details including clearances obtained, number of flats available and sold, site maps, etc. Most important, all residential sales will have to be based on carpet area of the apartment/home. Hopefully this will end the current malpractices based on ubiquitous terms such as ‘built-up ‘ and ‘super-built-up’ area.Read Also: Real Estate Bill: What It Means For The Home OwnerThis slew of measures will ensure not only projects are completed on time, but also specifications of flats and facilities offered at the time of sale are adhered to. The setting up of the Regulatory Authority and an Appellate Tribunal is aimed at setting up a dedicated forum for hearing and resolving the plethora of property disputes speedily and to hopefully ease the existing courts of the mountains of property litigation they handle.Developers expectedly are not happy. Anuj Puri, chairman of broking group Jones Lang LaSalle India, says: “The Bill in its current form does not provide for any relief to developers in obtaining approvals for construction from the multi-headed Government agencies. They have stressed on the need for a single-window clearance to cut through the red tape. This issue does not find any mention in the Bill.”Sunjay Dutt, Executive Managing Director of property brokers Cushman & Wakefield, while welcoming the realty bill as “a watershed development,” however, warns that the cumbersome permissions required once the bill is implemented will slow down new launches. “Hence, the Bill may create an upward pressure on prices as there will also be some cost implications as developers wait to launch their projects with due approvals in place,” says Dutt.
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TAM Media, the television audience measurement agency that has been around since 1998, is in the throes of a crisis. Three broadcasting networks — Multi Screen Media (MSM) that operates the Sony brands, Times Television and NDTV — have said they will pull out and stop subscribing to the audience monitor. Zee and Star India, among the largest of the broadcasters, are also mulling disassociating themselves from TAM. Currently, TAM Media operates the only audience measurement currency called Television Viewership Ratings (TVRs) based on which as much as Rs 12,000 crore worth of advertising revenue per year is planned and invested through media planners and ad agencies. TAM Media has been literally skating on thin ice. Over the years, it has been facing flak for basing its TV audience research on a very thin base of a couple of thousand households spread over a 88 towns and centers. Critics, especially those TV channels who are marked down, point out that this peoplemeter base is too small to provide a scientific dimension to audience measurement. IBF president Uday Shankar says TAM covers just about one-third of India’s television universe. The government has also flayed TAM for providing skewed numbers, and Information & Broadcasting minister Manish Tewari frankly told this correspondent that it was all set to shut down the agency. Interestingly, the immediate trigger for the boycott call of broadcasters against TAM was the sharp fall in ratings of many channels after the mandatory digitization of cable TV. In some cases, viewership is shown to have fallen by as much as 25 per cent. The representatives of the advertising industry — the Advertising Agencies Association of India (AAAI) and the Indian Society of Advertisers have, however, come out in favour of keeping TAM’s ratings going and pointed out that without the weekly ratings, the health and commercial viability of the advertising sector would be at risk. In the long-term, the government and the other stakeholders are working on a broader audience measurement plan through the Joint sector body, the Broadcasters Audience Research Council (BARC). However, it is estimated that financing the new agency would require an investment of Rs 600 crore or more, and no one is quite sure who or how this investment is going to come in. I&B minister Tewari admitted this was the main stumbling block. In this scenario, if a slew of major broadcasters withdraw from TAM and stop paying their subscriptions, the agency might collapse. In the absence of an alternative audience measurement currency, this could be suicidal for the media industry. Besides self-claims, how will advertisers judge which channels are the best to put their money on? The broadcasters are heaving the axe on their own feet, and they would be better advised to bring in the alternative before killing off the only currency that now exists. gurbir(dot)singh(at)abp(dot)ingurbir1(at)gmail(dot)comTwitter: (at)stayalive
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India’s first monorail line is ready to begin commercial runs. Funded at a project cost of Rs 2,460 crore by the Mumbai Metropolitan Region Development Authority (MMRDA), the first phase 9-kilometer line will run between Wadala and the eastern suburb of Chembur. After the second phase is completed in about a year’s time, Mumbai’s monorail system of 20 kms with 17 stations will be the second longest in the world after the 24-km Osaka Mono Rail corridor. Still on trial runs, the gleaming green and pink, 4-rake trains give a bumpy ride; but the L&T-Scomi consortium engineers executing the project have promised to fix that before the line kicks off commercially. Skimming over the city’s buildings, railway yards and mangrove swamps, it will be a visual delight for commuters in Mumbai used to sweaty, sardine-packed local trains. Even though it is over two years behind schedule, the Monorail will offer some relief as a feeder service to a city bursting at its seams. In Picture: Mumbai's Monorail
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