Friday, January 1, 2016

New Year's Resolution of a Builder!

"If you asked me for my New Year Resolution, it would be to find out who I am"…Cyril Cusack.

Cyril James Cusack was an Irish actor, who appeared in numerous films and television productions in a career lasting more than 70 years. And he was respected for his wisdom too which isn’t a rare characteristic especially in western cinemas where many actors are good readers as well highly educated! Cusack’s above quote is example of his thinking depth & perfect for the present real estate developers while welcoming to the New Year. The passing year must have be blackest out of the last many for the real estate as sales dropping to new low every day & the terms “appreciation” or “returns” seems coming from another planet. At the same time govt kept hitting the industry (if we can call it as industry) below & above the belt, with announcing every day new policy & tax burdens, taking out whatever life was left in the industry! So when it comes to face the approaching New Year, at which most of the eyes in the real estate are looking expectantly for “Achhe Din”, what a builder should resolve is what I was thinking on! But before that it’s important to know the scene over past year regarding real estate.

Here many will say wasn’t this correction required, as so many years it was “builder raj” on the real estate industry & didn’t these builders used the same govt system for their benefit & enjoyed on appreciation of the land rates which kept on getting high every year taking the home out of not just pocket but out of imagination for the common man? To some extent yes but like the famous Hindi song from Namakhalal (A Bachaan movie in 90s), “Shikari khud yaha shikar ho gaya”, type situation has finally happened with the builders. While taking the govt system at ride, builders forget that govt is one of most cruel entity as it only understands its own survival. And it’s the builders who have shown the govt, the huge profits in real estate so till the land rates factor was there real estate industry never minded the blood sucking by this system as new blood was getting pumped up in the form of the enormous profits by ever rising land rates. But the moment land rates stopped increasing then the industry started realizing the pain as well energy loss by this blood sucking mechanism but till then it was too late! Now govt knows only one thing; that there is immense revenue in real estate & it doesn’t care whether real estate survives or not but it wants its share of the revenue out of the industry. May it be TDR policy or surcharge or ses or premiums on every sq ft or increase in ready reckoner rates, govt is keen on squeezing real estate every deal & feel its own pockets first, is a fact!

On other side the one latest survey by a reliable source reveled that only in Pune nearly one lac flats are unsold & this covers both ready possession & in making flats. The same survey further stated that the appreciation or rise in the home rate was mere 0.69% in 2015 which at many places has even gone down also. Actually in real estate the rates are not increasing is in a way reduction in rates itself as land has been purchased in most cases upfront i.e. all payment has to be cleared before you start the project. So if the land rates don’t increase so your investment is without any returns which mean loss! And to add on the clients & investors both are keeping away from the real estate; clients keeping away as the end product isn’t in their budget & investors because they see no returns at least assured ones! Many buyers who have buying power believe that the rates will decrease further so they are holding back the buying decision. Here again the builders were responsible as they keep building the homes not for the end users but for getting the prices doubled & keeping happy the investors who played lead role in making the homes costly. Every Tom Dick & Harry joining real estate was speaking only one language, “kitne dinome double hoga?” means, in how many days my investment will get doubled? This was going to end some day as no movie can be a hit on basis of black marketers; you need genuine movie watchers as they are the one who makes a movie box office hit & not the black marketers. With all due respect investors in real estate are like black marketer as they didn’t wanted to live in the houses but used to wait till the rates rises & then they can make money on it! In the whole process builders as well the investors forgot that some day rates will be so high that there won’t be any genuine buyer left to pay that price, then what? No one has ever thought on these lines & outcome is what we are experiencing.

And then construction costs keep on increasing with very high labor costs as well the charges which govt is collecting per sq ft of construction area under the name of premiums also are ever rising, making the production costs remains up & ever rising. The term affordable is just now on paper as who defines affordable figure is a question no one can answer. At the same time the facilities or say infrastructure is poor in every city, as right from public transport to water to education every where a common man has to shell out lot of money apart from his EMI to repay the home loan. This also brought down the buying capacity of home buyer. And the with ample supply now in market rental option is also there, so many people opting for rental accommodation than buying a home.

The builders tried age old tactics to fight the slow down situation, giving big advertises in media, arranging exhibitions or say sale of properties like domestic goods with loads of offers & discounting under different name like no VAT or Service Tax or no registration charges or even builder himself becoming financer & what not.  I think this further demoralized the mood of the market making end buyer think that its builder who is in need of the bookings & the focus has been shifted from home to discounts or offers. Another issue was diverting the funds generated from a project where the sale was good, towards other non selling projects or buying new lands at speculative rates, causing the builder enter in to dead lock of no cash flow. This affected project completion dates & with even big names the possession dates got delayed. This make the buyer not to trust on any big name & wait till the project comes in final stages at site, this further added finance burden on most developers as earlier all one has to do is invest in land so the construction money used to come from the bookings itself, which isn’t the case anymore!

Here the major mistake most builders have done is taking the end users granted! Earlier in 90’s , all one has to do is buy land & plan anything on it with amenities like club house , swimming pool, publish full page advertisements in all new papers & launch with big bang, the first phase or first lot of the flats used to get booked in just few days & then keep increasing rates for rest phases! This way of launching was possible for only big names so whatever these names used to launch used to get sold. It’s no more the condition now, as all the information about any project is available on net & today’s buyers doesn’t buy blindly or going for just big names or amenities. Today with smart phones & internet, on Google Earth you can actually see the site location & surrounding developments & compare the rates offered with other ongoing projects nearby, so like it’s shown in Idea net works advertise, no more “ullu banaing” is possible now by just advertising or offers. I don’t mean that all these big names used to fool customers but at least they can’t just en-cash their brand anymore by just the marketing gimmicks is a fact. This clientele means business & all you have to have is a good product, that’s it! 

One more aspect is availability of homes as well land. The govt is in mood to use every inch of land for urbanization; though I am no expert whether it’s good or bad but it’s a fact. All the policies are in favor of converting any existing land use into residential purpose & on top of it options of more FSI in form of TDR or development FSI or paid FSI are being given to the developers. So last year saw huge inventory on front of supply of homes & this is going to be the way. Govt under the name of making homes cheaper actually wants the revenue which will be generated in the form of taxes in developing this FSI & in process has forgotten, its affordability which should be the focus of the policies & not just supply of FSI, while looking at real estate! This is a big challenge as like earlier days where demand was always more than supply, now it might be reverse case in real estate. Especially for large scale developments where at single location more number of homes will be generated.

On all such background, what should be the resolution for the New Year, which will be most challenging phase, of a real estate developer as a builder? By me, like great Sunil Gavskar has always told to the new comers in Cricket, it applies to a builder too & he says, “stick to the basics of the game; do think of making hundred every time you come to bat but reach that mark run by run, remember no one can make hundred in one over!” On same line as a builder, decide why you are building a project, & agreed it to make some money but that some money has to be defined well in advance before launching the project. Think of end user while you make your product & stay committed to the cause. Understand the changing scene of real estate & challenges & then decide your profit margins. Most important know your clientele & their demands; this genre of clients is very smart & they like their builder to be transparent & available to them. Communication, especially with clients was never forte of real estate, so let’s decide that it will be your strong point & it’s no big deal with internet like tool at your hand. Resolve that you won’t make any false promises & will stick to whatever you have promised may it be to client or even to your contractors. Don’t launch any project unless you have all sanctions in hand & stick to schedule whatever you have planned & give possession only after obtaining all the necessary noc’s from the respective agencies. At the same time resolve that you will be working on image building of self as well real estate by associating sincerely (yes that’s important) with as many activities like nature conservation & social awareness. This all seems near impossible job but then doing business wasn’t ever easy in our country provided you want to travel on an honest path. Finally as a builder, resolve that you will make yourself proud by what you build; only if every developer makes this as a personal resolution for the New Year, then there only lays hope to gain some pride for the entire real estate which is in a way “Achhe Din” for the entire industry!

Sanjay Deshpande 

Sanjeevani Dev.

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