I am reminded of an incident during the first qtr. of 2014, an event organized by one of the industry bodies of Real estate developers, wherein an Union minister was grilled mercilessly by the builder lobby, with fear of retribution or remorse They actually read out the writing on the wall to the outgoing minister.

A new government in place, the builders would again go to town now, seeking growth triggers, in the 2014 budget. What are their expectations, and, how realistic are they? Let’s take a dispassionate look.

1. Recovery & growth of the general economic conditions – The NCR developers, with more than 40% unsold inventory, and a depressing cash flow status would be hoping that the sentiment improves drastically, post budget. With a bull run happening in the stock market, that quantum of funding is being sucked away from Real estate.

2. Preferred Industry status – This has been a long-standing demand of the Real estate industry, whose claim to preference are two fold:
i. Biggest employer after agriculture
ii. Plays a pivotal role in nation building
There is reasonable merit in the argument, as theoretically the industry does play the role. However, the counter argument being that a $100 billion industry is still run like pop n mom large format stores, wherein the management bandwidth isn’t there yet.

3. Liberalized fund flow – The Indian bankers still consider the Real estate sector fraught with risks, and tend to lend at much higher rates. With Private equity (PE) lenders, private financiers & such organized capital indulging in much higher levels of due diligence, the fund flow into RE industry is not at desired levels. The industry would seek the introduction on REITs, special incentives for Green concepts, other innovative funding mechanism.

4. Infra status for Housing – Many a countries have augmented their housing supply by according special status to housing, thereby bringing prices to reasonable levels, and creating housing for all. In India, it’s a largely confused activity. The private sector creates supply for the upper end of the pyramid, while the lower end is catered to by the DDAs & housing boards. They hardly create any supply, and coupled with the greed, the prices are artificially ballooned. That leads me to the next point.

5. Pragmatic approach by state governments – Although, the center has very little role to play in the licensing (excepting the Airport authority & environment clearances), the laws governing real estate vary from state to state. Unless the density, FAR, licensing norms, Needless clearances from various departments etc. are done with, the cost of production would remain high, and so would the delays in delivery. If time is money, can we expect prices to mellow down? We argue of Earthquakes, natural disasters etc. in a very general sense, and restrict modern technology & technique into design & construction. The policy makers should realize that the licensing standards, as well as that in-charge, are archaic. If construction of multi storied buildings in Japan, Indonesia, Dubai can sustain the weather, so can we, if the right tools are applied, and that too, on a cost effective manner.

6. Recent regulations, judgments & orders on Land – Rehabilitation, resettlement, annuity for 30 years etc. are words that scare the developers. Ideally, they would like to have the freedom to develop once the land is purchased in full from the existing landowners. Also, some of the recent orders by the courts, tribunals etc. further the already depressed market condition, with the buyers staying away.

A quick word about the “Gujarat Model” of Modiji. If one has noticed, the real estate prices in Ahmedabad hasn’t really gone through the roof, and moderate pricing has been maintained with sufficient supply of raw material. If the same yardstick is applied, would some developers of NCR, those who practice pre-launch, assured returns, other innovative means to raise capital by the hook n crook, be able to measure up? We as a region have raised the bar for unrealistic earnings from real estate, but manufacturers & retail investors.

Some of the more credible ones would be praying for a weaker rupee so that the foreign funding when available, can be of help to them, shore up their finances.

I am reminded of an age old wisdom relayed to me by my mentors –


Hope the NCR real estate learns that.

(Author- Ramesh Menon- Director Certes Realty Limited)


Category : Articles

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