90% people in Most Cities
Can Not Afford One’
With the advent of new technology,
regulatory reforms and economic challenges, the sector is at a stage of
evolution where it is exposed to ‘change’ and there is some resistance to adapt
to it.
However, there is little choice for the sector but to embrace change
wholeheartedly if it has to compete in an increasingly global marketplace.
The biggest driver of change, among
several others, is the real estate regulation bill, which once enacted,
will bring significant change in the way real estate industry functions.
Apart
from the bill, there are changes like increased urbanization – with
approximately 500 million people expected to inhabit cities by 2020; targeted
infrastructure investment of an additional Rs 70,000 crores; increased private
participation in infrastructure; and material as well as technological
advancements.
A high-powered concluding debate
among the senior-most panellists was on ‘Creating history or history
repeating?’ – moderated by Ramesh Nair, COO and
International Director, JLL India. The panellists
were M R Jaishankar, CMD of Brigade Group; Sushil Mantri, chairman & MD of
Mantri Developers; J C Sharma, vice chairman and managing director, Sobha Ltd;
Ashish Puravankara, MD and CEO of Puravankara; M Murali, managing director,
Shriram Properties; Chanakya Chakravarti, MD and head, acquisitions, J P Morgan
Asset Management Global Real Assets, Real Estate India; and Manisha Natarajan,
senior VP, corporate affairs and senior editor, real estate, NDTV.
Here are the key remarks from the
panellists around the main talking points:
- Based on experiences from previous business cycles,
what must the market avoid going forward? How will the rules of the game
change given sales are no longer easy?
Chakravarti: “Markets are always evolving and developers need to give a
professional level of service to customers, who are getting empowered through
technology and media. Developers should give up their day-trader mentality.”
Jaishankar: “Real estate is a cyclical business and developers need to
always take risk into account.”
Mantri: “Slowdown is a good time to learn. With every cycle, the
industry learning increases by one digit. This time, it is in the range of Rs
100 crore. Affordability is one of the biggest learnings.”
Natarajan: “Real estate market goes both ways – up and down – and the
party has to stop sometimes.”
Murli: “Developers should not to be categorized as good or bad but
as aggressive and passive.”
Purvankara: “Real estate cycle has come down to months from years,
internet is impacting the business, buyers expectations have changed,
developers need to focus on execution as his current delivery matters, not
past.”
Sharma: “The global financial crisis has taught the industry to
focus on cash flow, the size of apartments, and not taking the customer for
granted. Increasing transparency is another learning.”
- Will the Real Estate Regulator in India have ‘teeth’
and how will it regulate the market going forward? Are the current
provisions enough? What more is needed?
Chakravarti: “Even Africa has a real estate regulatory act.”
Mantri: “RERA can be only effective if the government can deliver.
The government departments should also be bought under RERA.”
Natarajan: “RERA in its current form has teeth and is perfect. The delay
in redressals will be addressed by it.”
Murli: “RERA is like signing divorce papers before marriage.
Self-regulation is most important, for example, in truck finance, there are 55
lakh truck drivers who have applied for loans but have a default rate of only
1.5%. Today the problem is saying no to bank as there is so much capital.”
Sharma: “RERA will increase corporate governance among developers.
Anything good for the customers, is good for the developers too.”
- Given the potential of the Indian Real Estate market,
what does India need to do differently to compete for, and attract,
foreign investments and capital?
Chakravarti: “Funds made a mistake in 2008-11 when they didn’t evaluate
enough. Some funds could be repeating history by making the same mistake. This
uncertain period will help differentiate the men from the boys.”
Jaishankar: “If title insurance is introduced, it will help increase
FDI. The government needs to ease FDI rules to bring in more foreign
investments. The next two-three years will see more supply than demand in
India.”
Purvankara: “India story is strong abroad. Single window clearance can
help attract more FDI.”
Mantri: “There was no shortage of capital over the last two years
and it is not expected for the next three years. FDI flowing into India could
cross the previous peak achieved in 2007.”
- What is going to drive success in future – residential
or commercial development or something else?
Chakravarti: “Transport network is the solution to make real estate more
affordable.”
Jaishankar: “Media should not call it ‘unsold inventory’ but
‘to-be-sold inventory’. Contractors need to change their mindset towards skill
development of labour.”
Mantri: “In Bangalore, if developers deliver affordable homes, the
demand could go up further. The current demand is 50,000 units per annum and if
more affordable homes are constructed, it can go up to 2.5 lakh units. If
government gives approval in one day, it will help projects become 25%
cheaper.”
Natarajan: “Developers need to introspect and make homes more
affordable because 90% of our people in most cities cannot afford to buy a
home. The maximum number of cases in Indian courts are against developers.
Developers need to think of it as a home, not as a stock.”
Purvankara: “Developers should focus on developing more smart homes,
design more efficient sizes of apartments (by increasing carpet area) and
reduce dependence on labour by increasing usage of technology.
In his concluding remarks, Nair
said, “Managing risks effectively by
constantly evaluating costs, reviewing risk management policies, assessing
regulatory risks are important lessons. Likewise, concentrating on long term
health and creating a sustainable organisation by assessing business processes
and key metrics as also re-examining talent needs are all key learnings.
Developers need to focus on professional management, brand building, strategic
partnerships and investor relations
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