The New Developer

  • Abhishek Behl
  • India
  • Jun 28, 2013

 

 

Despite the slowdown in the real estate market across the country, and decline in the number of property transactions even in Delhi-NCR - one of the hottest property markets - there is little chance that a correction in prices would take place in the near future. Prices in Gurgaon seem even more insulated, because the real estate trade has become very wealthy, and the stake holders have the capacity to hold for a long period - as well as even buy some new properties that are now available at low prices, believes Vineet Relia, Chief Operating Officer of SARE Homes, a fully FDI funded real estate company that has managed to develop a pan India presence despite being a young player. “In a slow market like this volumes are unpredictable. And contrary to market belief, it affects more the projects where delivery is behind schedule. If a project is ready, sale/resale will happen,” says Relia.

Another reason is that the City has good brand value. “Everyone loves this City and wants to buy/recommend a property here – for themselves, their family, relatives and even friends. Nowhere in the country have real estate assets given appreciation as good as Gurgaon,” he says. This makes Gurgaon a strong magnet for end-users as well as investors. In the past couple of years the profile of investors has also changed, believes Relia. “More professionals are investing in real estate, and their time horizon is 4 to 5 years – and even more. Some of them are even investing in homes where they would like to retire,” informs Relia. He also says that investors who have made money by ‘gaming’ the market have realised that it is time to change strategy. Short-term investments can work only when volumes are high, and demand for real estate is booming. Additionally, if any builder is offering discounts to short-term investors, he is undercutting himself – and that is a bad business strategy, particularly in an environment like today. However, real estate players can’t avoid short-term investors, as the money to fund their projects is not easily available – because banks, and other institutional lenders, shy away from giving loans to this sector. In his opinion, if industry status were conferred on the real estate industry, thus opening up organised funding, it would make the execution and delivery of projects quicker and more reliable. 

When asked how SARE Homes was different from other real estate companies, Relia says that they are not constrained by funds, and plan projects accordingly. They have developed pan-India execution ability, with strict monitoring of delivery schedules and quality. Choosing to operate across the country is a major challenge for SARE, as the Tier II and III cities in India do not have the scale and volume to support major players. “The market in these cities is smaller, and the job market is not very strong. The primary driver of real estate in any market is jobs,” says Relia. “FDI in real estate is at a nascent stage, but it will definitely help the real estate industry in a big way,” he says. SARE likes to avoid a land acquisition/aggregation strategy, as it is one of the most volatile issues – due to the sensitivity of farmers, and legal issues. “We prefer to buy land that already has licences and clearance, and is ready for development. It helps us to concentrate on our key areas of competence, and avoid uncontrollable delays,” says Relia.

A key challenge in the real estate sector is of managing the regulatory framework, which differs in every state; even the same laws are interpreted differently across the country. For Relia, the Real Estate Regulatory Bill, which has been approved by the government, could be a game changer for the industry. It should help weed out many players who do not follow good practices and governance. However, while the government has brought in more monitoring and controls, it must provide adequate growth incentives to the industry. There is need for a single window clearance mechanism, and government officials must also adhere to a time frame. “Haryana has done better than most other parts of the country, as the rules and regulations are framed more clearly. However a lot needs to be done on the infrastructure front,” he opines. The regulators also need to ensure that new rules do not come up on a retrospective basis, as they upset the economics and add uncertainty. 

On the issue of problems being faced by real estate buyers, particularly in Gurgaon —related to the delay in projects, changes in project norms, and poor build quality—Relia says that the times are changing, and the gap between the buyers and builders is narrowing. The buyers are more aware now, and the Internet and social media have played an important role in the sharing of information and opinion. “We also need to understand the problems faced by the builders. The customers here are very demanding, and expect a lot from the builders. In this scenario we have to work with each other, so that dissonance is reduced,” he says. His suggestion to buyers is that they should check the intent of the developer before buying a property. “At SARE Homes we believe in giving more value to the buyers. The quality of construction is at par with the best in the industry, though we are building middle-class homes,” he says. In addition, the Company also offers a one-year defect liability period, in which all problems related to construction quality are resolved for free by the Company.

The problems of buyers, Relia believes, are more about the image and perception of the industry as a whole, and are not limited just to buying and selling. The government, customers as well as bankers think that this industry does not run professionally; this perception (or reality) needs to change. “The builders will have to change the way they function, by bringing in more transparency and accountability. CREDAI, as an industry body, is doing its job, but everyone will have to pitch in; though of course this is not going to happen overnight,” says Relia. At his own company there has been a major focus on developing in-house talent in HR and IT domains – the two functions that have been traditionally ignored in this industry. Relia admits that there is a lack of professional talent in the country to run such a huge sector, but the times are changing, and corporatisation is also taking place. “More corporate companies and professionals are coming to this sector, and this augurs well for real estate,” he says.

When asked about how affordable housing could be brought back into the agenda of the builders, Relia says that the government has to play an important part in developing housing for the economically weaker sections, as well as low income groups. “No developer is going to spend his own money without getting adequate profits. The government has to chip in, by providing cheaper land and making development norms friendlier,” he says. The recent policy of the Haryana government, of building affordable homes for the weaker sections, is a step in the right direction – but the authorities need to support the Policy with action (which has been missing till now on this front). Another approach could be to develop satellite sub-cities and create job opportunities there. “The government must first develop the infrastructure, which is crucial for success of any industry. While we are all developing many projects in Gurgaon, the required infrastructure has not come up”, asserts Relia. Government agencies have collected large amounts of money as External Development Charges, but development has not taken place even in the current sectors. “When power and roads are inadequate in the City, why should all the blame be put on the developers?” he asks.

Another major issue concerning real estate in Gurgaon is the rising cost due to government and regulatory decisions. Referring to the ban on the use of ground water for construction, Relia says that the authorities should make adequate water available for construction – otherwise this will lead to an increase in the cost of construction, and delays. 

Relia believes that commitment to quality, and the passion to serve customers, will help developers to survive during the tough times. “The need is to focus on working closely with buyers, and building relations,” he signs off. 

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