Most listed real estate developers are fully transparent in their dealings and the ranks of fly-by-night operators are rapidly diminishing, says Anuj Puri, head of JLL India
The ugly caricature of Indian real estate as an industry controlled by corrupt despots is naive, outdated and incorrect, says a top agency chief.
Most large listed real estate developers in India today operate under complete transparency, says Anuj Puri, Chairman & Country Head, JLL India.
The real estate sector is vital to India and ‘the backbone of its economy, but it often gets an extremely bad press and reputable developers are tarnished by a few ‘fly-by-night’ operators, he believes.
“The fly-by-night players who were responsible for this image are still around, but their ranks are rapidly decreasing. In the meantime, it makes absolutely no sense to paint every real estate developer with the same brush. Most large listed real estate developers in India today have wholeheartedly embraced the mantra of complete transparency.
“They are selling their products on the basis of declared carpet area, firmly refuse any hint of black money monies as part of their sales transactions, and do everything in their power to deliver their products on time. They are also fighting hard to correct the structural deficiencies of the overall regulatory system – not only because their businesses are suffering on account of conflicting rules and regulations, but because they are being held accountable for factors which are beyond their control. They take their roles as industry stakeholders very seriously, and are among the loudest voices in the outcry for positive change at a policy and regulatory level.”
Reputable developers have a vision of Indian real estate as a level playing field in which the business of real estate development and consumption can be carried out in a rational, transparent and uniformly beneficial manner, he says.
Over the years, Indian real estate has been a seemingly limitless source of negative hype, he admits. “Scams, controversies, rumblings about delayed projects, agitations by consumers and debates about the over/under-regulation of the real estate sector have all provided ready cannon fodder for countless publications, internet forums and assorted activists. In fact, the real estate sector has drawn more media flak and outrage than any other industry in India.”
Any environment that involves fear has its villains, but in the case of Indian real estate developers, this is underserved, he says.
“Market watchers in countries that India has or is seeking to have economic ties cannot but notice the bad press that Indian real estate is getting. This is how the unfair and wildly inaccurate blacks and whites of the Indian condition as depicted by ‘Slumdog Millionaire’, become superimposed on an industry which is – if fact be told – the backbone of the country’s economy.
“Naturally, any environment involving fear also needs villains. It is almost axiomatic that Indian real estate developers are the designated ‘bad guys’ – the greedy perpetrators of crimes against the helpless common man, wielding their wealth and political clout with impunity, with the sole intention of turning a profit and furthering their own agenda.
“Real estate is something that lives and breathes at the very core of every Indian’s being, not least of all because it is considered the most important manifestation of success, wealth and power.
“Unfortunately, the fact that real estate transmits such signals in India has made it an object of not only admiration and desire, but also of something close to fear. While fear is invariably the result of a lack of understanding, it is nonetheless a very real force on the ground.”
The real estate sector is vitally important to the Indian economy:
- The Indian real estate sector generates employment for about 7.6 million people across the country last year
- Real estate is the most single-important consideration for any foreign company eyeing Indian shores to launch operations and create countless more jobs
- Real estate’s overall contribution to India’s GDP was estimated at about 6% in 2013
- Real estate constantly cross-fertilizes other industries like cement, steel, paint, chemicals, tiles, fixtures and fittings
“The scams that have so seriously impacted the image and credibility of Indian real estate in the past were not the result of a unified developer nexus, but the work of individual players whose crimes have now been attributed to the industry at large. Should we not also consider how some of India’s biggest real estate developers took incredible risks to open up entire new cities to add to the country’s growth?
“The urbanization that is the focal point of India’s economic growth hinges on the growth of its cities, and therefore on the products that real estate developers deliver. Wherever we see new cities rise from obscurity into prominence, there are developers restructuring skylines, building homes for population and office spaces for them to work in.
“No Indian’s heart can help but swell with pride as they perceive a city like Mumbai, Gurgaon or Bangalore from the air as their planes prepare to land there. What gorgeous evidence of progress is displayed in the tapestry of skyscrapers jostling each other for space, road networks spreading out to connect new areas to existing ones, and office and manufacturing complexes providing the economic nerve-centres.”
At the end of the day, real estate is a business like any other, and no industry can claim to be free of flaws and anomalies, he admits. “Almost every day, we hear about delayed projects, deviations from project quality and configurations, and additional payments being charged for changes in apartment areas. We read about how real estate is the first port of call for politicians looking to off-load their unaccounted funds, about developers who have launched projects on land which has not been cleared for development, and how others have been pulled up for flouting FSI and environmental norms.
“Such things do occur, and the developers who practice business in such a manner must be held responsible and brought to book. However, these developers do not represent the industry as a whole – they are anomalies that must be eradicated, not symptoms of an industry-spanning pandemic of manipulation and wrong doing.”
Most of the extensively-reported incidents of delayed project completion are often not the result of malpractice, but of a flawed regulatory environment.
“It is true that some unscrupulous smaller developers intentionally undertake a slower pace of construction if sales in the project are sluggish or a larger part of the project is unsold. However, in most of the cases being touted as evidence of a corrupt industry, delays have happened because the authorities have not granted timely approvals, and the morass of bureaucratic red tape that developers have to navigate for every project.”
Before a project is officially launched on the market and offered to buyers, there are myriad permissions that a developer needs to obtain from the state and central agencies and ministries. This does not only lead to delays, but also cost escalations.
In real estate, land is the basic raw material for development, with construction materials being the variable costs. The longer a developer has to hold its land without getting any receipts through the sale of proposed apartments, the higher its project costs escalate.
“Obtaining the 57-odd permissions to begin construction of a project can take as much as two years. During this time, the cost of acquisition or even just holding the land for a project rises. Builders already have to cover external and internal development charges, license costs and often charges for change of land use from various departments, which have also risen. Cost of construction has gone up by more than 35%, as well.
“Again, if we consider changes in the apartment area or unexpected price increases after consumers have purchased properties from a developer, these too often occur because changes in project plans were required by the authorities before they issue an approval. There are many examples of how abrupt changes in regulations governing real estate development have worked against both developers and real estate buyers.”
By Adrian Bishop, Editor, OPP Connect