Tuesday, August 25, 2015

Hon RBI Governor Sir... Open Letter from a Builder!

Real estate is one sector that India is not very proud of....Kushal Pal Singh

Kushal Pal Singh Teotia or K.P. Singh is an Indian real estate mogul and the chairman and CEO of DLF Limited, founded by his father-in-law Chaudhary Raghvendra Singh. DLF limited is India's largest real estate developer. Not surprising that coming from a person who himself has given a new dimension to Indian Real Estate, as many will agree & the clients will vouch for what he has said! Why I choose his quote is when its real estate, we always hear something similar & here always few make money where as most pay for it, which eventually are the clients & common people of our country.  

May it be any platform, speaking against builders or real estate is now what we are used of but when Reserve Bank Governor does it on a public platform, it’s not to be taken lightly! Till now right from Honorable PM to our State’s CM, all had their go at real estate & now RBI Guv fired the last salvo on already crippled real estate named creature by saying builders should reduce their selling prices of the homes! Here I recall a story of one of our leading politician telling farmers few years back to eat bread if they are not getting chapatti! Well seems Honorable Governor was in mood of joking but then let me tell it was a bad joke indeed as I am developer by myself & I am proud of it. What Gov has said I haven’t heard directly but read in news papers & he may not be saying about all builders yet from that position whatever we say it has to be clear or else words can damage more seriously than any weapon!

Going by Hon Governor let’s see first what is the scene in the real estate & then we can decide whether reducing rates is the solution which is possible or not? For years real estate is considered as the safest investment & simple reason is it’s not the mean of investment but it’s a need base product. A home is the first need of any Indian family & that’s why people buy homes, unfortunately looking at the tremendous potential in this need base product many entities & we know very clearly who are these entities, entered in the real estate to make it as investment based industry & not client based! Agreed investors are a must for any business to grow but in the process somewhere we all even the Govt also forgot that the essence of the real estate is to provide homes to the millions of common men of the country & not just to double the investments returns & today a stand still situation in demand of real estate is the outcome of every that persons greed who is associated with real estate. As in the whole process the end user of real estate has been driven out from the market! I think Hon Governor must be talking in this context but then is builder alone responsible for the out of budget prices of homes? Is the question I will like to ask to Mr. Governor! So let’s have a look at the factors which affects or  associated with the price of a home & they are Land, TDR, Construction Material & Labor, Govt charges/ premiums as well Sanctioning Processes, Taxes & Stamp Duty, Finance, Infrastructural burdens & lastly other necessities’ of today’s life! What outcome common man sees is it’s the builder who is making homes costlier because he is the one who delivers the home & takes the money but then this logic is as childish as saying the grocery shopkeeper is responsible for making  Cadbury chocolate costly, just because he is the one who sells it!

Take the issue of land prices, here is a product which has no upper limit to sale but a lower limit is there in the form of stamp duty or ready-reckoner index which also keeps on moving up each year means Govt itself accepts constant rate hike in land cost! So what Govt is doing in controlling a land price is what Hon Governor should ask to the Govt because that’s the main crux of entire real estate! On one hand Govt wants every advantage of ever increasing land prices & on other hand it expects builders to control the finish product’s prices, well as the famous tag line in a ad says, “ye baat kuch hajam nahi hui”! Land prices are uneven because of poor infrastructure, if every buildable land has got well developed infrastructure with roads, transportation, water, drainage & power then obviously the land prices will be balancely equal & then we can expect cheaper land costs with more supply of buildable/livable lands for the homes! And sure this builder can’t do it; all he has to do is surrender to the current rat race & beg, borrow & buy the land at whatever rate it’s available & build homes on it!

Another modern day’s real estate key word is TDR which indirectly is potential behind capacity of the land to absorb more buildable area on it! In simple terms it’s like plastic money, i.e. area generated via acquiring reservation lands. Here the process is extremely slow & the result is no TDR in market & whatever it’s there in many cases the TDR rates are more costly than the land rates itself! Slow generation of TDR indicates one more thing i.e. slow development of the infrastructure as no one is giving land under reservation to the governing body! Why can’t we on our own reach out to the people & starts process of acquiring the lands under reservation & declare third party TDR like court verdict! Take help of law here as whether city’s interests are less important against some individual land holder’s interests? This certainly no builder can do but the Govt; what say Mr. Governor?

Then take a look at hundreds of materials & their costs involved in the construction field. Right from basic material like cement to steel to sand & khadi & even water, if you study the graph of last ten years the cement itself have risen by three times & so is steel! Sand & khadi like natural items have hundreds of policy hurdles such as not issuing sand digging permits to restricting their transportation as per some fixed weight carrying norms! Then like land there is no control on any of these materials which could be easily done, especially if the materials are being used for affordable housing range & for that first decide such range defining what is affordable! Labor rates may not be as good as auto industry in real estate but then so is scarcity of skilled labors, hampering work quality! Except few efforts like “Kushal"; a workers skill development program, the industry lacks skilled labors & no mass level effort is there for this cause! This affects output by the present labor force which is one main cause for increase in construction costs as well cause accidents at site! And then nearly fourteen percent service tax  on every service contract adding the cost strait way by that percent, why can housing is considered as essential commodity & make some set off available for service tax in real estate & then asking developers to pass that effect to end user?

We as CREDAI or MBVA i.e. associations representing builders has given hundreds of suggestions regarding various development charges as well premiums which local bodies apply on any new constructions but of no use! No one expects or asks for zero premiums as for city growth money is required but that doesn’t mean only one segment will have to take that entire load! Years after years property taxes, our elected members don’t allow to increase for fear of losing the vote bank but what about every added rupee in sanctioning charges of the new projects? Who is ultimately paying for that burden if not citizens of the city? And what they are getting out of it? The biggest joke is Municipal Corporation takes huge amounts for project sanctions in the form of development charges including premiums for stair cases & even parking but smartly makes the builder responsible for inadequate water supply like issues which in actual is PMC’s responsibility! It even doesn’t supply water also for building construction activities not even drinking water for the site labors! And what about the time span required for all the sanctioning process? The interest burden just keeps on mounting with every day wasted in getting hundreds of NOC’s & the home becomes costlier but who cares as those who are the policy makers or sanctioning authorities are not the flat buyers, though most of them generate enough money for that in the process, please don’t ask how?  Hon Governor can you please under any fake name register a builder firm by yourself & try getting a small say just ten flats project sanctioned & then let’s see to who you will appeal first for reducing home prices?

On the top of it there are every known tax in every possible form like Vat, Service Tax, LBT, Stamp Duty & Ses as well Infrastructure tax & Security deposit when it’s PMRDA but who gurerenties security of the developer if the project isn’t sold? The above list of taxes as well premiums takes near about twenty percent of selling cost out of which nothing goes in the pocket of the developer but all goes to the Govt, making the Govt biggest gainer from real estate! So Hon Governor Can you ask the Govt to shell out something for the home buyers if not for the builder?
Even a lay man in financing like me knows by now that here in our country no bank finances for buying the land for real estate, even the project finance for a project that too if the banks management permits or if it is in sectorial limits, then the loan is given for construction of the project only! So from where the builder is getting money to buy the land & at what rate of interest, has some one ever asked this question to any builder? The interest rates are as high as thirty six percent a times & who bares this burden but the flat buyer! If you are buying a land for building a factory or hotel there is loan available by all Govt banks at very low interest but if you are making homes for the common man on the same land then there is no loan!  On the top of it every financing institute is in home finance but that’s for the flat buyers not for the person who is making those flats! Such jokes can happen in this country only & Hon Governor expects builders to use their own money to buy the land yet reduce the rates of the homes!

After going through all these grinds when a home is ready then the builder himself has make provisions like power cables along with transformer room for getting electric supply, why? Because the MSEB don’t have funds to do these infrastructure setups. There is no proper paved road for the site, so the builders have to join hands & get road done, same is story for water supply or drainage; as or else who will come & live in the homes without this basic infrastructure. And whose responsibility is to provide all this, can you please ask Hon Governor Sir? And who is bearing the cost of all such infrastructure making, please do ask that too!
Apart from every above aspect the flat buyer has other responsibilities as well necessities of life such as he has kids whose school fees are more than EMI! There is no public transport so he has to pay for petrol in his as well his wife’s two wheeler & then pay for school bus too! He has to shop a bit for his essential needs & watch a movie for entertainment. He has some travel plans in vacations as well he has to pay his mobile bills, & all these things also need money. What about ever rising rates of food items like “tur daal” & vegetables, certainly builders are not responsible for that too, I hope   Mr. Governor! So home is not the only thing which takes money to buy, what about prices of all such essential commodities? We can ask that too, don’t we?

And with all the things in place yet one more task remains & that is to market the homes which you have built & can we ask who controls advertising rates? Even in media to my knowledge there are higher rates for builders so let’s appeal the media also to lower the rates for advertising of homes!

Like when we say “save tiger”. It’s not just one specie that can be segregated & protected but the entire life cycle of which the tiger is a link, needs to be protected then there are hopes for the tiger. In same way unless we answer all above questions how can be the builder only is responsible for lowering prices of the homes? Going a step ahead, with all due respect to your good intentions about the real estate segment, do you think just lowering prices will solve the issue? What guaranty is there that lowering prices will improve the market scene & lowering is a vague term, how much exact be clear on it! And have a look at various advertises about real estate; doesn’t it suggest the mentality of the market & a clear indicator that rates are already down? Rather such statements which will drive whatever customers are there away from the market! Dear Governor Sir, we respect you as a person as well your intelligence very much & look with all the hopes for brining some real good change in the policies by which no one has to be told to lower the rates for the homes & all we be proud of real estate unlike what Mr. K P Sing quoted! We need to think about making a home affordable to every segment of the society & when we say affordable it means affordable to its manufacturer too i.e. to the builder himself; there lays the solution is all I wanted to share! Will be happy to assist on this front is all I can assure as a small time developer who has still some pride left for the profession he is in!

Sanjay Deshpande

Sanjeevani Dev.

Please do visit my blogs to know about our philosophy at Sanjeevani ! (Click the links below)



Social Side of Sanjeevani ! (Click link below)


For any of your complaints about city, log in at link below


Think Green, Think Life


1 comment:

Please leave ur name, email id along with ur comment. It will help me to reply ur comment as well improve the blog as per ur suggestions if any.