Opinion: Builders Should Have Realistic Expectations

(Ramesh Menon is the founding director of CERTES Realty and is a land & urbanisation expert)

With a new government in place, the builders are again going to town seeking growth triggers in the 2014 budget. What are their expectations and how realistic are they? Let's take a look:

1. Recovery & growth of general economic conditions:

The NCR developers with more than 40 per cent 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 markets, 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 is two-fold:

• Biggest employer after agriculture
• Plays a pivotal role in nation building

There is a 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-and-mom large format stores wherein the management bandwidth isn't there yet.

3. Liberalised 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 and 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 (Real Estate Investment Trust), special incentives for green concepts and 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 and 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 centre 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 (floor area ratio), licensing norms and needless clearances from various departments 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. and restrict modern technology and technique into design and 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. For this right tools need to be applied and on a cost effective manner.

6. Recent regulations, judgments & orders on land

Rehabilitation, resettlement, annuity for 30 years are some of the 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 further the already depressed market condition.

If we take a quick look at Modiji's "Gujarat Model", we notice that real estate prices in Ahmedabad hasn't gone through the roof, and moderate pricing has been maintained with sufficient supply of raw material. If the same yardstick is applied to Delhi-NCR would developers who practice pre-launch, assured returns and other means to raise capital be able to measure up? We as a region have raised the bar for unrealistic earnings from real estate, but manufacturers and retail investors.

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

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

"Deserve before you desire."

Hope the NCR real estate learns this.

The opinions expressed here are the personal opinions of the author. NDTV is not responsible for the accuracy, completeness, suitability or validity of any information given here. All information is provided on an as-is basis. The information, facts or opinions appearing on the blog do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.