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Abundant supply needed: CREDAI Chairman Kumar Gera


CREDAI Chairman Kumar Gera in an exclusive interview with Construction Week says all the stakeholders should come together to address the housing problem in India

A doyen of real estate industry, Kumar Gera is known for his remarkable business acumen and critical approach towards various issues pertaining to real estate industry. Sitting in his Pune office for more than an hour long interview, Gera looked enthusiastic discussing industry’s major issues and things need to be done to address those. Gera is in the business of construction for over 40 years and understands the industry in-and-out. He says India has a major challenge ahead to build houses for 250 million urban population that is projected to live in cities in next 20 years. He emphasised on the need to create abundant supply for each segments to meet the demand. To address this pertinent issue, CREDAI last month held its 10th Annual event ‘NATCON’ with the theme: “Homes for all”. Gera says there are three important factors – finance, land and transparency that are needed to fill the huge housing void.

NATCON this year had the theme: “Homes for all – Working together”. Do you think this is the most pertinent issue in India today? What was the reason for selecting this topic?

The urban population is poised to grow very fast which will create huge demand for housing in India. About 26 million houses are required to fulfil this demand and over 90% of this is in the EWS and LIG sectors. Rest of the demand is for all the other segments such as MIG and HIG.

This is going to be very challenging task to create that much supply. It is very crucial to have participation from all stake holders such as developers, government, policy makers, financial institutions, etc. to solve the housing problem in India.

The main objective of NATCON was to bring all these stakeholders onto a common discussion platform and work together to find a solution.

There are three important factors — Finance, land and a transparent process which are needed to fill the huge housing void.

Land should be made available for development at a fair cost as also financing. If this is coupled with good governance and transparent processes the desired results should be possible.

Do you think ‘affordable housing’ is still a business gimmick in India today as houses are not ‘affordable’ in true sense? Developers so far have shown very lukewarm interest in building affordable houses. What should be done to make ‘affordable housing’ a viable and practical proposition for the industry?

Let’s begin by defining “affordability’’. What is affordable to A, may not be affordable to B. An affordable house ideally is one where the cost of the house or the EMI is about 30-40% of a person’s annual income. So homes must be built to cater to every strata of the population.

To answer your question about what can be done to make affordability more effective; I think we will need to create abundant supply. If supply is abundant the price will become competitive. In short we need to have competitive markets.

In addition, there is a large land bank locked up with various government departments, like the railways, army and others. Often it exceeds their long term needs for growth and expansion. This land needs to be freed for the public consumption and social housing efforts should be initiated on transparent PPP models.

Since land acquisition costs and input costs are so high affordable housing is not very viable for the developers. In addition, every developer has a limited band width. The government has to therefore make affordable housing schemes more attractive and lucrative for developers. There have been some attempts by the government but too few and too far between. Affordable housing must make business sense to the developer for him to be interested, without which it will cease to achieve large scale success.

National Textile Corporation Ltd (NTC) had recently released textile mills land through e-auctioning which will increase the land supply for the space-crunch Mumbai city. What impact will this have on the Mumbai property market? Should more lands from textile mills be released for development?

I think it’s very good move and more of such prime land should be made available for redevelopment. This will create more supply in the market. However, since the developers had to pay high price for the land, the supply will be created for the upper-end segment. Also, we would see mixed use development, both residential and commercial, on these mill lands, primarily due to the location being in the heart of the cities, making it very lucrative for commercial, large format retail / shopping and entertainment zones.

Mumbai has seen fast increase in projects related to ‘redevelopment of old buildings’ as the city has very limited land to develop new building. How do you expect the segment to perform?

Again, much supply has not been done through such schemes as there is no proper plan in place. Giving merely extra FSI does not work. The government needs to first create proper infrastructure.

A long term plan for the redevelopment of old cities like Mumbai is needed. A planned redevelopment on a mega scale can work wonders for any city. Take example of the micro market of Kalbadevi in Mumbai which is a very congested area with old buildings. The government first needs to develop the infrastructure like water supply, drainage systems, and internal network roads etc. for a higher density of the houses and then invite developers to take up redevelopment projects with higher FAR upon payment of higher development charges.

What is the future of slum development projects in India? The country’s largest slum redevelopment project at Dharavi is still to see light. How can this segment be made more attractive for developers? What are the challenges for the segment?

As with any other large scale schemes, the government needs to proactively plan and come up with feasible slum redevelopment programmes. Just giving extra FSI will not work. Builders are after all businessmen and they will look for viability if not enhanced profitability at the least. Builders will plug-in as execution experts, but the onus of proactive leadership cannot be levied on them. And bottom line is that without good and honest governance, these schemes will find few takers. Coupled with all these, there is the need for transparency in bidding, tendering and allotments of the units. There is no doubt in my mind that the biggest challenge is transparency.

Do you think luxury segment holds lots of promise or it’s still restricted to metro cities only? How do you see the segment to perform in coming years?

The luxury segment slowed down a bit due to the economic recession. This segment primarily caters to the high net worth individuals who want to buy second homes or upgrade to bigger and better accommodation. If this segment itself is not doing well due to the recession, the demand will naturally slow down a bit.

But more supply will come in 2011-12 and demand should rise, therefore, this segment is expected to do better than last year.

Green is the buzz word in the industry as everyone is claiming to be green. How do you see the industry’s response to the green cause? Do you think ‘Green Building’ concept is fast catching up in India and can emerged as strong sellable component for the industry?

Awareness exists amongst the developers and they are willing to champion the cause. But awareness should be created among the buyers as well. They must be enlightened about the benefits of buying / living in an eco friendly development and that it will come at a marginally additional cost. They hesitate in paying more and easily settle for a standard building. Having said that, the green trend is fast catching up in India and we will see a number of green projects coming up in 2011-12. Probably by 2016 green may become ‘par for the course’.

What is the future of ‘Integrated Township’ projects in India?

Integrated township projects have worked well in some places but not everywhere. We could see a slowdown in this segment. The main reason why such projects have few takers is that the developers have to build the entire infrastructure themselves. The government gives some concession but that’s not attractive enough for developers. There just isn’t enough motivation for the builders to create large sized townships.

Some time back we had put forth a suggestion to the government– introduce SRZ (Special Residential Zones) schemes. Where just like SEZs, more incentive such as abolition of taxes could be given. Today, the sum total of all taxes, duties and levies come to about Rs900 per sq ft. But the SRZ proposal is still “under consideration”.

SEZ as well as IT Park development projects are growing at a very slow pace for their own different reasons. How do you see the segment to perform in 2011?

SEZ development has slowed down because there are lack of clarity about various polices. The government on one hand has given some tax relief but they are now saying that some of the services will be taxed. You can’t give some concession and then say we want to withdraw it.

IT Park projects have also slowed down because IT sector got affected due to the global recession. Though the IT is looking good now but they still have not started expanding or acquiring new offices at the pre 2008 pace.

What is your reaction to recent ‘Bribe-for-loan’ incident? How is the incident going to impact the industry? Do you think the industry needs to do some retrospective? Do you need more stringent loan process to be followed? Will the bank loans become more difficult to get?

I consider this as case of graft and wrong doing on the part of some individuals. You cannot call this a housing scam as about 70% of the loans ‘facilitated’ are for industry unconnected with Housing or real estate development. I think the banks will be more cautious now and loan processing might get delayed for some time. But this won’t have any major impact on the industry as there is no systemic failure.

Do you think fund availability is a concern for the Real Estate Industry? Which are the sources (bank, PE, IPO) that developers would rely more for fund raising? What’s the future of real estate IPO in India?

Availability of funds is not a big concern for developers per-se. There are many financing models in addition to the Banks, PE & IPO routes namely pre- commencement bookings, investor bookings, joint-ventures with land owners and so on are available to developers.

There are not too many real estate IPOs coming up because the market sentiment currently is not very good. The market share prices of almost all the real estate firms are at lower than issue prices which also affects the sentiment negatively.

How do you expect the real estate industry to perform in 2011? What would be the trend in 2011?

I think the year 2011-12 is expected to be better than last year. Almost all the segments, especially affordable housing are expected to do well. But SEZ, IT and Integrated Township may see some slowdown and it may take another year to get back the momentum.

It must be noted that in the real estate space different situations exist in different towns and cities, at the same time even within cities different micro markets are responding differently. It is therefore always difficult to make a single sweeping statement that fits all markets of India.

Do you expect some price correction to happen in 2011-12?

Again while it is difficult to make a sweeping statement, I think, some micro markets may see correction. The urban India population is expected to reach 570 million from current 320 million by 2030 which means almost 250 million people will be added in just 20 years. It’s a huge number. So we need that many houses to fulfil the demand. In light of this, will price correction be southwards or northwards? My guess is it will be northwards.

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