Putting Attention into ‘Makaan’ After ‘Roti’ And ‘Kapda’
Apr 30, 2012
 
 

‘Roti’, ‘Kapda’, ‘Makaan’, is a common phrase in India used to denote the most fundamental needs of any individual. Sadly while the first two are met, a very small percentage is ever able to meet the need of owning a home. The problem is already acute with rising property prices and inflation, and is slated to become a serious issue in India in the next few decades as a large population reaches their retirement age. One solution promulgated is low cost housing. But in a nation like India with a huge population is it even possible? 

The demand for affordable housing can be judged from a few simple statistics. The urban population of India has grown from about 290 million in 2000 to over 340 million now. While the Indian urban population grew by 230 million between 1971 and 2008, 250 million people will be added to already exploding cities in half the time since 2008. This creates tremendous pressure on urban infrastructure, especially considering that geographically urban land occupies only 2.3% of the land mass of India but houses 30% of its population, a percentage that will grow to 40% by 2020 without much increase in urban land. 

There is thus a huge gap between demand and supply of housing for the Indian population, especially considering that riding on a strong GDP growth year on year, millions of Indians are rising out of low income brackets to enter the great Indian middle lass. This class with affordable income will balloon to over 30% to 40% of our population in 20 years. And it is a population that is well informed, savvy, assertive and aspirational in their needs and will demand better and more cost effective homes with recreational spaces. It is a population that will not be satisfied with the bare minimum in their living spaces, but will instead seeking a certain elegance and lifestyle in their homes rather than living in multistory buildings that are no different than slums with no amenities and features beyond the four walls. 

The Indian Real Estate sector is thus in the midst of one of its greatest challenges, of not just meeting this demand but anticipating future demand as well. However, the industry has still not totally emerged from the chaos of the pre-liberalized era and is saddled not just by internal contradictions, but also heavy regulations and laws that are not geared up to meet this great demand that India faces. 

For the developer, the challenges are as huge as the potential opportunities. Real estate is not just an organized sector, but also one that is reliant on team work. However, the industry is plagued by a lack of quality staff in the managerial, financial, technical and organizational departments. To add to this problem is the absolute lack of any specialized courses in the country geared to teach and thus meet the need for specialized and trained staff. On top of this, those people taking educational courses that are associated to the industry, like civil engineers, are all being poached away by other lucrative industries like the booming IT sector. 

The setting of quality standards, of construction, safety and maintenance – has not yet been done for the industry. To add to this is the multiplicity and complication involved in getting regulatory approvals. So far the concept of one window clearance for any construction project today has not stirred up any political will and a developer has to run around to different regulatory bodies that take up a minimum of eight to ten months even after the acquisition of land and construction planning. This is a problem where a united industry has to pressure the government go get their act together. 

While the nation is straddled with the needs of existing infrastructure, there is hardly any focus given to the needs that are growing everyday. There needs to be a national vision for the industry as a whole, with all concerned bodies working towards giving this very important industry its necessary attention for it to contribute to the nation’s economy in its full potential. 

The real estate industry is also plagued not only by lack of innovations, but also by its inability to use existing technology. New technology adoption, especially in e-governance, project planning, monitoring, construction etc. can speed up the rate of growth of the industry and the nation. 

One of the biggest problems of the industry is a constant liquidity crunch. Due to delay in getting regulatory approvals and other issues, often either investor back out or the price shoots up so high that the project remains no longer as feasible as initial estimates. Introduction of Real Estate Mutual Funds (REMF) and REITs can be one solution. 

These are general problems for the real estate industry in general, that multiplies when one applies them to a developer that wants to provide affordable housing, where the key trick is to have a control on all these factors to ensure quick turn around time. On top of that, rising inflation is causing the interest rates of banks to shoot. Thus a person paying a certain EMI, suddenly finds it has multiplied making owning a house, that much more difficult. 

The real estate industry has a very low barrier point for entry, resulting in many new entrants who get into the market, offer seemingly affordable housing, but are not able to maintain that and shut shop. This is the reason that when it comes to consumer trust, this industry is one that faces the greatest credibility issues. This problem is being addressed by big, established brands, like Tata Housing and Godrej etc. entering the sector, and leveraging on the trust established with their customer for decades. 

There is also disconnect between what a consumer needs and what is being doled out to them. Statistics show that most of the residential requirement in real estate in India lies in the range of Rs. 2000 to Rs. 4000 per square foot i.e. within a capital outlay of Rs. 15 to Rs. 40 lakh per unit of housing. But the customers buying them are the rising middle class of the nation, who not only want a house to live in, but also want to have a lifestyle around this. The need for the industry is thus to come out with exciting lifestyle solutions while working within the constraints of affordability. The solution to this from the perspective of the industry, perhaps lies in reducing the overall cost of a unit of housing by creating pipelines that allow the inflow of low cost inputs and funds into projects that are mass based and the use of technology in every stage of the way – design as well as construction. 

Despite these seemingly insurmountable problems, the industry, as mentioned earlier, has no where to look but up with demand, especially in the low cost housing sector, growing exponentially. What is needed is a comprehensive overhaul of the real estate ecosystem that has to involve every stake holder – the industry, the government and the nation’s populace. 

The real estate business is a long term sustainable business that not only creates value and profits for its stake holders but fulfils a very crucial social need for the nation. While ‘Roti’ and ‘Kapda’ for the masses are taken care of, the ‘Makaan’ element deserves to be given the attention it deserves, not just for the sake of the individual, but for the growth of the entire nation. 

By Brotin Banerjee, MD & CEO Tata Housing Development Company Limited 

 
 
 
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