Future lies in rental housing

In the second part of the discussion hosted by DNA on affordable housing, we continue from where we left off (see January 30 issue).

The moot question remains as to in spite of the so-called efforts — like extra FSI and exploitation of mill lands for residential/commercial development — why have the real estate prices not come down? Those who took part in the discussion were Pranay Vakil, Pankaj Kapoor, Mayur Shah, Sandeep Runwal, Neera Adarkar, housing secretary and IAS Sitaram Kunte, and advocate Rajan Jayakar

Neera Adarkar (NA): The additional aspect to affordable housing in the FSI business is density. If you increase the FSI in the higher bracket, the density does not increase. Density becomes higher when you increase in the lower bracket. Bear in mind that the builders said prices will decrease if FSI is hiked or if land locked under ULC is freed and thereafter in the mill lands which was practically given to them on a platter.

Sandeep Runwal (SR): As a citizen, I am ashamed of the mill lands case. Right now, there’s a change of perspective for us. In 1994, we went for premium luxury. The market was such, anything would sell. Similarly in 2005 we got super profits. In 2008, we had to go back to the drawing board and re-launch our projects, cutting flat sizes. And in two days, we had 2,000 people walking in. The cycle has changed and it provided a good barometer to people’s requirements.

Sitaram Kunte (SK): On the higher side, there is oversupply — flats are ready but not selling. On the other hand, we have 5 lakh people chasing applications for Mhada flats. The government is merely a policy maker. The players in the market have to look at the asymmetry and cater to all segments.

Mayur Shah (MS): Only when land prices are less than Rs500 a sq ft is affordable housing possible. We are doing a project in Badlapur where the land cost is Rs100 a sq ft. Add in a profit of Rs200 a sq ft plus construction and interest costs, my selling price is Rs 1,200 a sq ft and there are many takers. If land rates are Rs3,000 a sq ft, affordability is out.

NA: So, you are saying if people cannot afford these rates, they should move out of the city?

SK: I have a different point of view. If you look at affordability in arithmetic terms - land price and cost of construction, you are not going to provide affordable housing. There is a need for ingenuity here. In Mhada, we use cross subsidy by constructing some commercial development. Look at how Tata built a small car. A similar business ingenuity model is needed here.

SR: I strongly disagree. It is impossible for us to cross-subsidise. Developers cannot be expected to construct apartments for the higher end and then the lower end. It is the government’s social responsibility to its citizens. Developers are only for profits. Who are we going to fool? We are building affordable housing when we see profits and not because we want to.

Pankaj Kapoor (PK): Real estate is different from other products because it is immobile. You have to make the best of the limited space. Ingenuity is not possible.

NA: When 50% of NTC and private mill land came into the market, did the prices come down?

Ranjona Banerji (RB): Look at Lower Parel. Is there any semi-affordable housing anywhere. I see only shopping malls.

Pranay Vakil (PV): Can we learn from international experiences? What we are facing today is been faced by other cities like New York and London. Why aren’t we spending time to create infrastructure to connect the city to the mainland? Once you improve infrastructure connectivity, prices in Mumbai will go down.

MS: The trans-harbour link has been planned for eight years.

RB: There is an emotional aspect here — you want to live in Mumbai, not Badlapur. You cannot have a city filled with only middle and upper class people and just shift the poor out. You will be killing the city.

NA: Mhada’s track record is better than that of developers. Slum schemes, whatever their objective, have not even filled 10 per cent of required capacity, when there was public private partnership. Mhada has done a commendable job of constructing 62 affordable housing colonies for LIG and MIG. Here’s a new suggestion. Earlier, whenever mills were built, so were there chawls to house the staff. It was a mixed zoning that benefited the city. Today private corporations can also fit staff residences into their complexes. It could be even rental housing.

SR: The reason we cannot build even servant’s quarters is that if a Rs1 crore flat is not affordable, increasing the saleable area by 100 sq ft makes it costlier. My cost of construction has doubled. What about the steel and cement cartels? We are the bad boys as we are in direct touch with the consumers.

PK: The land owner actually decides the price on the basis of the prevailing market rate. There was so much money in the market that inflation led to construction cost going up. Once that happens, everyone starts asking for higher prices.

MS: But who benchmarks the price. At BKC, land got sold at Rs 30,000 a sq ft. The owners definitely hiked the rates.

PK: When the NTC mill land was supposed to hit the market, the average price was Rs 4,000 a sq ft and when one mill actually sold, the rate zoomed to Rs 20,000. It had a cascading effect with a developer who was quoting Rs 12,000 a sq ft doubled his rate to Rs 24,000 a sq ft.

PV: The developer was building the price of uncertainty into the project. When is the government going to make the housing policy into a law? I was thrilled to see that the policy had included selling flats on carpet area. What has happened since?

SK: The process is on. Carpet area will be useful for the consumer.

MS: I agree with Pranay. Developers are uncertain on how to go ahead. With a clear policy, we could have gone ahead and constructed tenements for the government. Take the 60,000 tenements we constructed for MMRDA at Mankhurd. Profits do not always matter. We want to do something for the city.

SK: A teacher recently asked his class who the builders of modern India were. He was expecting answers like Jawaharlal Nehru. Instead the children said, “Runwals, Rahejas...”
(laughter)

RB: Can we sum up?

NA: Whatever the reason of recession or otherwise, we welcome the developers’ decision to do something for the city. The government can take advantage of the situation and ask them to provide affordable housing, market compulsions otherwise. It is the time to act before the separated flats join up again!
(laughter)

SK: The Centre was happy that Maharashtra has declared 2009 as the year for affordable housing. The central government is thinking of declaring 2010 as the year for affordable housing nationwide. There are two things which the government is looking at.
To be fair to the developers, unlike other sectors, they are faced with a set of archaic laws and machinery which is high on revenue seeking. Local urban laws have long drawn out procedures and the legislation is antiquated, obsolete. All this adds to the cost of housing. There is a need to streamline the laws, some need to be done away with and modern technology should be introduced. The central government is looking into this. Secondly, the role of public sector housing boards like Mhada. In the past 20 years, the housing board have been starved of funds, no staff and they play no major role either in the market or as a direct provider of affordable housing. Now, we are seeing a revival of interest in public sector housing boards. They may act in two ways; provide housing and as a counter balance to the prices charged by the developers.
While builders definitely are stakeholders, organisations like the Nagari Nivara Parishad can participate in the process and make sure laws are framed in such a way that affordable housing is possible.

Rajan Jayakar (RJ): Taking up the government’s decision, there is one law I specialise in and practice that is the Public Premises (Eviction of Unauthorised Occupants) Act, 1971. I remember Nani Palkhiwala in 1991 said that except for the aberration with the Emergency, there has been not more a draconian law than the public premises act.

Under this act, if the property is owned by a public undertaking — a bank or insurance company — then tenants of that property have no protection like the Bombay Rent Act. Bodies under the policy have recently started revising their rents,  sometimes by almost 1,000 or 5,000 times. This segment is very large. It is only the time taken in litigation which is keeping the tenants protected.

SK: The government is also thinking of some sort of accreditation of developers. The Centre is looking to develop a model act to regulate this sector. Once this is done, we can move forward. We should not get hasty lest it adds to more litigation. We are also thinking of reserving some percentage of land for housing for the EWS/LIG within big townships being planned by private developers. There will be some element of regulation at what price they can sell these houses to this sector. Earlier, there was a temptation to over-regulate. Now our policy focuses on both purchase and renting.

PV: I can see two immediate focal points — infrastructure and rental housing. There is no single developer creating a stock of rental housing with a view to rent it. That is because of the archaic Rent Act or because the yields are low. Amidst all this, any city has a 30 to 35% floating population who want to rent and if that also can be addressed, it will ease a lot of problem of affordable housing.

The US has real estate investment trusts. They may own 500 complexes of 300 to 500 flats each only for rental housing. That is the way the world works. Why is nobody in India doing it? The laws are responsible. Interesting, we have guidelines framed for reits but for some reason no developer is implementing it. If made into a law, funding for rental housing become easier.

MS: The law does not permit foreigners to own property. Such funds who want to enter the market cannot do so.

RJ: We need to see how reits work. The Rent act should either be done away with or modified so that owners are happy. Right now the law is very one sided.

SR: As a developer, it is impossible to have affordable housing in Mumbai. I do not see land prices coming down, unless the state looks at increasing FSI to average out the cost. The government through Mhada has to play a key role. There is no clarity of rules and regulations, all which adds to the cost of construction. It is ridiculous the amount of money we spend.

SK: Just like gold was liberalised, the liberalisation of FSI, real estate rules is already on.

NA: I congratulate the government that Mhada wants to enter by starting to create affordable housing again. The private sector cannot create and if the government does not create affordable housing then it will become a city of the rich. All the service providers will be brought in by mass providers. It will otherwise like the South African ghettos, where one will need a pass to spend a night in the city.

PV: I believe rental housing is the immediate solution.
Thank you so much for your participation and your honesty in shedding light on such a difficult issue.