There is no simple answer for the India’s growing housing deficit, but one should identify the key problems to understand how to generate the housing stock at a better rate and time. The key problems that pose hurdles are unavailability of urban land, delay in approvals from govt. and other bodies, increase in the cost of construction, lack of skilled manpower, higher interest cost, limited avenues for funding to developers and disputable tax regime. The probable solutions can be achieved by improving land planning and utilization, encouraging micro mortgage financing mechanism, providing viable business model to encourage further involvement of the private sector and alternate sources of funding for developers.
Rajesh Vardhan, Managing Director, Vardhman Group
shares his views with Sandeep Sharma
about his company, market situation in MMR, emerging trends in the realty space, growth expected in the residential segment, re-development space, green building development, affordable housing and recommendations to solve housing deficit in India. Edited Excerpts...
Tell us about your company, core competencies and achievements during the five decade long journey of your group?
Vardhman Group is a revered name in the real estate industry and has become synonymous with luxury living and engineering sophistication. True to its name which means ‘growth’, the Group has grown exponentially during its journey spanning close to 50 years. The Group’s foray into redevelopment of old and dilapidated buildings, slums and old societies through innovation and technology bears testimony to its social practices.
Could you provide us insight about the emerging trends in Indian real estate sector?
Indian real estate sector is currently passing through a dull phase. The costs are up and the demand at that price does not match due to factors related to economic growth and the markets. Moreover the country is waiting for election this year to show directions in the coming period. The outlook for second half of 2014 looks promising and the under current is very positive.
How is the market shaping up in Mumbai metropolitan region (MMR)?
The virtual growth has happened in the Mumbai metropolitan region area be it Thane, Vashi, Virar etc. the cities have turned into vibrant township with all support centres ready. The affordability and accessibility have facilitated higher sales in this region and still sales are better in MMR.
How was the response to your real estate projects in CY2013?
For our organisation CY2013 was not bad as the country on a whole. We flagged off 4 - 5 new projects. On the sales perspective also there were decent numbers, our projects are in good locations and hence see a better demand as compared to others.
Out of residential, commercial, retail and hospitality, which of these segments are likely to generate more business for your company in CY2014 and why?
Residential no doubt is to generate more business for any company. We will be delivering 4 projects in year 2014, and we have kept our focus on residential segment.
What’s your take on sustainable construction and green building development?
Indian real estate market has transformed a lot and developers have realised that they should contribute by way of sustainable construction and green building development. We are also doing projects where we can develop the project as green building. Policy has to be implemented by Govt. and MCGM to promote these projects by providing benefits to developers.
How big is the re-development space in Mumbai? Are you active in the re-development segment?
Our specialisation now lies in redevelopment. We have close to 90% projects in redevelopment at various stages of execution and more than 30 projects are with group for redevelopment.
How far increase in building material, equipment and labour cost has contributed to rise in construction cost considering period of last 2-3 years? What is the way forward to control these prices?
The increase in the prices of the input material is close to 40% in the last 2 years. This has lead to increased costs associated to development. Unless strict measures associated to taxation, interest cost etc, impact the material cost is taken there cannot be any control on the prices and worst is additional taxes such as VAT, Service Tax, stamp duty etc. has lead to the increase of the final product.
The Pilot Housing Start Up Index (HSUI) released by Ministry of Housing and Urban Poverty Alleviation and RBI recently has indicated decline in housing for Kolkata, Bengaluru and Chennai. What’s your take on this index?
The pilot housing start up index is an indicator of volume of construction in the housing sector in a specific period. This index is a critical indicator of the economic growth related to banking, labour, mortgage, steel, cement etc. The index which is launched currently is in line with international indices that are Canada, New Zealand, Japan, and France. The index is linked to 254 ancillaries who are related directly or indirectly with the housing sector. Thus making this index as an important indicator the challenge however remains to be seen as to how quickly and accurately the indices are generated for multiple cities.
The stock market is throwing mixed signals and investors are looking forward for safe investment. In the current scenario, do you think real estate as an asset class can be attractive proposition?
The stock market is throwing mixed signals as it depends on the economic conditions of the member companies. The economic downturn has raised the interest burden and trimming down of profits. Real Estate as an asset class for investment is always good from long term perspective. But given an option the investor should wait and watch for situation post election for better guidance.
How would you define affordable housing keeping in mind the Tier-I, II and II cities customer? Are you active in the affordable segment?
Affordable housing is a relative term and does not necessary link itself in term of Rupee. Each city has its different range of affordable segment. Affordable in Mumbai could be seen as luxury in other tier cities. Yes, we have some of our projects in that basket, and our total focus is more on mid – segment market. Luxury projects constitute about 10% of the total projects.
What kind of Government initiatives can go a long way in boosting the real estate sector growth?
Government has to take a number of initiatives to promote real estate. Real estate sector is directly and indirectly related to the overall economic growth. The slowdown in the real estate sector also reflects an economic slump. To revive the economy there is a desperate need to push the real estate sector. But the policies that have been announced by the government in the recent past have become deterrent in the growth of the sector. The latest judgements in the Supreme Court have also posed big obstacles for redevelopment projects.
What is the solution to India’s growing housing deficit?
There is no simple answer for the India’s growing housing deficit, but one should identify the key problems to understand how to generate the housing stock at a better rate and time. The key problems that pose hurdles are unavailability of urban land, delay in approvals from govt. and other bodies, increase in the cost of construction, lack of skilled manpower, higher interest cost, limited avenues for funding to developers and disputable tax regime.
The probable solutions can be achieved by improving land planning and utilization, encouraging micro mortgage financing mechanism, providing viable business model to encourage further involvement of the private sector and alternate sources of funding for developers.