‘Affordable Housing A National Challenge’

For a man who envisions “Thinking Big and Creating Surpluses” as the desirable motto for urban development in India, real estate is a field that holds immense scope for growth. As the founder-chairman of the country’s largest real estate group, DLF Ltd, India’s realty baron and the richest realtor, K. P. Singh, is credited with revolutionizing the urban landscape with his forward-looking ideas as well as innovative approach. Singh believes that robust economy and growing transparency supported by regulatory reforms has stimulated the real estate growth that is expected to outpace the country’s economic growth in the near future. Notwithstanding this optimistic outlook, the patriarch of India’s real estate is not oblivious of the challenges in the form of poor infrastructure, unplanned urban development, archaic laws and bureaucratic stranglehold. According to him, sound regulatory and fiscal policies hold the key to the future growth of realty and infrastructure. ‘Creation of surpluses’ is his mantra for high quality affordable housing with good urban infrastructure.

How do you view the current scenario of real estate and infrastructure?

India is at a historic point in its progress as a nation on the move. The country’s GDP grew by 9.4% in 2006-07, the highest in 18 years, making it the second-fastest growing economy in the world. This aggressive profile has triggered an even stronger momentum in the real estate, hospitality and infrastructure sectors, which are expanding at over 20% per annum. Indeed, the performance of these sectors is expected to continue to outpace the growth of the overall economy in the foreseeable future. Greater participation and transparency in the operations of these sectors, supported by regulatory reforms, has further stimulated this rising trend.

What, according to you, are the demand-drivers of real estate?

There are several areas, like homes, offices and retail, which are guided by different motivations. The demand gets a shot in the arm because of various factors. On the housing front, for example, some of the key factors that have spurred demand include rising income levels, a growing middle class, increasing number of nuclear families and favourable government policies. According to an RNCOS Report, India’s estimated demand for housing and real estate will grow at around 14% annually over the foreseeable future. Cushman & Wakefield have also highlighted the scope for 400 new township projects over the next five years, spread across 30 to 35 cities each with a population of 0.5 million. As far as the office segment is concerned, the recent Mckinsey-Nasscom estimates suggest that the total demand for space will rise to 500 million sq.ft.(msf) in the next ten years, with IT/ITES accounting for 60% to 70%. The rest will be from non-IT and manufacturing sectors. India’s commercial space (excluding government and public sector) doubled form 50msf to in 2002 to 100 msf in 2005. The rate of growth in India’s commercial space is likely to be maintained at 20% to 25% per year, creating an attractive industry opportunity. The booming economy and continued growth in the services sector, along with increasing demand from other corporate customers, will continue to be the key drivers of demand in the commercial real estate space. Next, India is one of the most attractive retail markets in the world. The organized section of the industry is expected to widen as the country liberalizes and the economy grows. Leisure and business travel, increasing disposable incomes and the growing popularity of India as an international tourism destination, increasing business activity and the corresponding demand for hotel rooms and convention centers will provide a thrust to retailing.

What about infrastructure growth?

Large multi-product special economic zones (SEZs) are seen as the growth engines of the Indian economy over the coming years, providing world-class infrastructure, investment opportunities and employment generation avenues. Manufactureing output in India is expected to grow at 14% annually from $300 billion in 2005 to $ 1,100 billion in 2015 with SEZs playing a significant role in making it happen. In fact, infrastructure development is one of the areas with a critical focus for India since its economy is supposed to sustain an annual growth rate of around 9%-plus over the next five years. The government outlay is also expected to increase from 3% to 8% of GDP, leading to unprecedented opportunities in infrastructure development.

But isn’t unplanned urban development a big challenge as well?

Actually an agenda for reforms should be undertaken in this connection. As against the rising demands, the ground reality is that the state of urban infrastructure and the entire spectrum of real estate products are far from satisfactory. Unauthorized construction has mushroomed, leading to congestion, proliferation of slums and degradation of the urban living experience. The cities are just unable to cope with the burgeoning population. Not only are green areas being blatantly encroached upon, but there is also a severe shortage of basic amenities. The majority of citizens, particularly those belonging to the under-privileged sections, are without water, power and sanitation. One of the root causes of such anomalies dates back to the early sixties, when the government decided to take over all aspects of land development from private developers and entrusted this business to public development authorities all over the country. This measure led to the elimination of professional and visionary private sector developers from the real estate scene and created a vacuum, which got subsequently filled by fly-by-night builders who, invariably, resorted to haphazard and unplanned construction activities.

Notwithstanding the real estate boom, skyrocketing property prices have put housing beyond the reach of masses. What do you say?

Because of the archaic laws and the bureaucratic stranglehold over all urban development activity, a vicious nexus emerged between untrustworthy builders, the entrenched bureaucracy and other vested interests, leading to corrupt practices and, invariably, violation of prescribed town planning norms. The inevitable result was skyrocketing property prices and rentals, putting even the cheapest accommodation beyond the reach of the common man.

What’s your take on urban development policies and real estate reforms undertaken by the government?

The policy in the years soon after India’s independence was perhaps pursued with the best of intentions and in tune with the prevalent ideology at that time of “thinking small and managing shortages,” not realizing that four decades later, the country would embrace an open economy in which a new prosperity and rising incomes would unleash unprecedented demand for state-of-the-art urban infrastructure and urban housing and fuel home ownership aspirations among millions of upwardly mobile citizens. In my humble opinion, the new urban development mantra should be based upon the philosophy of “Thinking Big and Creating Surpluses” rather than on the failed experiment earlier. Such a new approach would ensure the availability of cheap but high quality housing for all sections, along with a good supporting urban infrastructure. At present, real estate business in the country is governed by laws, statutes and town planning regulations, which are not only out of tune with the current requirements but will be wholly at variance with the needs and aspirations of the citizens of tomorrow. Accordingly, major reforms are needed to correct the mistakes of the past by re-modelling the entire gamut of urban development policies including revamping town planning regulations, particularly the critical aspects such as increase in FAR, height relaxation, rationalization of density norms etc. More than anything else, there has to be an attitudinal change on the part of policy-makers, municipalities and industry players.

What do you think are the future challenges?

I believe that the goal of providing decent and affordable housing to all sections of our urban population is a national challenge. The cities are drivers of economic growth, providing employment opportunities that attract human resources. As per an Administrative Reforms Commission report on Urban Governance, India’s urban population grew 8.5 times in the last century, from 25 million in early 1900s to 217 million in 1991,whereas the number of urban centers increased only by 2.5 times from 1,827 to 3,768. Among these the top 23 cities accounted for 31 % of the urban population in 1991 and that percentage has increased substantially over the past 15 years. By the year 2020, the projection is that there will be 75 major urban agglomerates with populations of over one million citizens each. All these citizens would need a roof over their heads. They would also need commercial, retail, entertainment as well as basic infrastructure facilities. This is the enormity of the challenge before us. It is a challenge before both the policy makers and visionary developers.

What role do you envisage for public-private partnerships under the urban development policy?

A good urban development policy should be based on the belief that India will grow even more rapidly in the future, making its people more prosperous and increasing the demand for better housing and urban infrastructure facilities on a scale never witnessed before. A futuristic urban development policy must cater to the requirements of not just decades but centuries ahead. These gigantic tasks cannot be accomplished by either the public sector or the private sector alone. Therefore both sectors need to work in close cooperation, coordination and harmony with clearly defined areas of responsibility. I am firmly of the view that the role of the public sector in urban development should essentially be that of an enabler, facilitator and regulator, and as a developer only in the areas of bulk off-site infrastructure and housing for vulnerable sections of the population. All other developmental activities connected with housing and construction as well as provisioning of onsite and offsite infrastructure should be entrusted entirely to the private sector for execution in accordance with prescribed norms. Private developers on their part need to ensure strict adherence to rules and regulations and gear themselves up to meet the challenges of providing world class infrastructure products in a transparent and competitive manner.

How do you look at the monetary policies from the standpoint of real estate growth?

The monetary policies of the government are no doubt aimed at maintaining a fine balance between encouraging economic growth and containing inflationary pressures. However ,it needs to be kept in mind that infrastructure and real estate development are dynamic drivers of economic growth. The housing and construction sector alone contributes 78 paise to GDP for every rupee invested in it. It has linkages with more than 250 ancillary industries and is perhaps one of the largest employers of unskilled labour. Against this background and the fact that this is a sunrise industry, with a multiplier effect on the economy as a whole, the monetary policies need to be cautiously formulated by policy makers to keep interest rates within the reach of all sections of society, make mortgage terms more attractive and create an environment in which developers will have access to adequate funds at viable rates of interest.

Finally, how do you view DLF’s growth opportunities?

Our journey continues to be exciting and challenging. Based on the robust economic outlook of the economy and its own inherent strengths and financial performance, DLF has multiple opportunities for growth and diversification across all lines of business. We are well placed to continue to lead the real estate industry in India. We have not only been building on our core businesses of homes, offices and malls but also diversifying our portfolio into new ventures. We have aggressively entered the fields of hospitality and convention centres, healthcare and community development, plus large format integrated land projects like SEZs and greenfield airport development and modernization. The DLF brand continues to command impeccable reputation for high quality construction, unique designs and excellent locations. Our key priorities for going forward include focusing on execution of current and planned projects, building a pan-Indian presence, expanding into new consumer segments, pursuing new business opportunities like wind energy and financial services, insurance/asset management and achieving the highest standards of professionalism, ethics and customer service. This is the spirit to which DLF is committed for facing the opportunities and challenges ahead in providing India with world-class real estate products and infrastructure. Our abiding vision, the strength of our human capital and our commitment to creating enduring value will continue to inspire us as we strive to achieve even greater success in the future. Based on excerpts from K.P. Singh’s speech at the recent AGM of DLF.