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Changes on home front

Changes on home front

Room capacity needs to double in the next five years to cope for inflow of travellers.

 When I look around and observe our country, I see India as a land of history and promise, surging forward with an infallible will to succeed. In today’s atmosphere one feels confident enough to take on the world, meet any challenge and achieve any dream. To comprehend the progress that the country has made, it is important to understand the fundamentals that are driving India forward.

Having recorded an average GDP of over 8%, India has slowly but surely integrated itself with the global economy. Internally, it is armed with a young, highly skilled workforce, a burgeoning brand-conscious urban middle class, all supported by rising disposable incomes.

Externally, India has become one of the most attractive global business and off-shoring destinations with foreign investors rushing to invest. Liberal regulatory norms have created a lot of excitement and positive sentiment. Further, there has been a conscious effort by the government to create a conducive environment for foreign investors. What is encouraging is that the mindset of investors has also seen a paradigm shift. Rather than hope for short-term gains, investors are now looking to nurture long-term relationships. The common sentiment for India can be best described in one word: bullish.

In the midst of all this, India’s infrastructure has been struggling to keep pace with the rapid speed of development. However, change seems to be around the corner. Connectivity is set to improve with the expansion of the National Highway Development Plan and the rural road network. An independent high speed railway freight corridor connecting the metros is also on the cards. Our cities, crippled by poor infrastructure and planning, are now looking to find the right balance of new development—providing services while protecting the environment and encouraging innovation. The process of privatisation and modernisation of airports is a welcome step. The planning of urban mass rapid transport systems will go a long way towards ending the constant traffic jam on our roads. A desalination project in Chennai could usher in a new era of guaranteed water sources.

Business travel is on the rise, benefiting the hospitality sector. Room capacity needs to double in the next five years to accommodate the inflow. The growth in the economy is also evident in the retail segment, which is being driven by the growing young population and consumer awareness. At present though organised retail accounts for only $7 billion of the $230 billion business, it is expected to show a 38% compounded annual growth rate by 2010.

All these factors are expected to result in an annualised growth rate of over 7% for India over the next 10-15 years. To maintain this sustained growth, reforms are a must and there is much to achieve in a short amount of time. This feeling has not escaped the Indian housing sector, which is faced with a paradoxical situation. On one hand there is a one billion plus population, increasing purchasing power, growth in professionalism and an average internal rate of return on capital in excess of 30%. Even with the present firming up of the real estate market, the mood is optimistic, with housing demand expected to bestrong over the coming years, especially among firsttime home buyers.

At the same time, there is no dearth of challenges. While increased foreign direct investment inflow and easy access to bank credit have been driving the demand for housing, increasing home loan rates and booming property prices have led to doubts on the sustainability of this growth. To make sure that the sector is not adversely affected, in the short- and long-term, a well-grounded strategy is the need of the hour. Future initiatives need to take into consideration the end consumer and ensure that housing remains accessible to all. Though the inputs for such a strategy are many, few are based on fundamentals and long-term vision. And it is the latter that will determine how the sector will develop in the future.

I must admit that certain initiatives taken by the Government are noteworthy. Be it the initiative of the Jawaharlal Nehru National Urban Renewal Mission or the support for transparency through advocacy of pricing using ‘carpet area’— the drive to create a professional and responsible housing sector is commendable. What is also encouraging is the support for ratings in real estate, with rating agencies launching systems for grading real estate projects and developers in the country. I believe that every small step forward ensures that sustainable real estate growth in this country can be a reality.

At this crucial juncture, it is also important to remember that the success of these initiatives will depend on the successful implementation of a few key ideas. First, property laws need an in-depth revamp with an emphasis on clear property transactions, ownership records and titles. Second, there needs to be an immediate focus on city infrastructure with local governments working together with certified urban planners and citizens to effectively plan the growth of their cities. Third, we need to cultivate a sense of responsibility and transparency in the operations of developers and builders to ensure that customers receive value for the money they invest.

These issues are inherently simple and can easily be implemented—what is required is political and social will. Once that is in place, there can be no barrier to the framing and implementation of uniform standards. It is such a vision that will take the Indian realestate sector to the next level of development.

Urbanisation in India too is far below international standards at only 28% as compared to 32% in China, 41% in Indonesia and between 75% and 80% in developed countries. As this number rises it also presents a great opportunity for foreign investment, likely to come in the form of partnerships and joint ventures.

The financial aspects of the real estate market are also maturing. Efforts are being made to introduce mortgage insurance products which will encourage more lending to the lower income segments or the self-employed categories where lending currently is limited. Real estate investment trusts are also set to enter the Indian market, giving a boost to liquidity in the sector. They will also enable the retail investor to invest in this segment, which till date has been dominated by high networth individuals and institutional investors.

For the consumer, the choice has never been as vast. Growing awareness has made housing projects attempt to differentiate themselves with more value added innovative features. Clubhouses, gymnasiums, green parks, environment friendly construction and earthquake resistant buildings have already become the norm for more up-market projects. The recent advances in technology have even made the concept of e-housing easy to envisage. Differentiation will also take shape in warranties against any defects in construction, disclosures in usable area and transparency in pricing.

Life’s situations present themselves to each one of us, without distinction. We can either accept conditions as they are, or accept the responsibility to change them. All that is needed is a vision, commitment and the will to change. With all stakeholders—landlords, developers, financiers, government and citizens—looking to make a difference, the next few years could be the harbinger of defining moments for this industry.

(By Deepak Parekh, Chairman of HDFC)