By: Sunil Dahiya, Managing Director, Vigneshwara Developers
I don’t see any reason why there has been a general perception that the role of the government is to provide low cost housing unlike private developers. Let me make it clear that it is not a change of role; it is the adoption of the role. Therefore the role is same, providing housing and urban infrastructure which was governed by state instrumentalities earlier. It has just been taken up by the private developers. But the problems associated with the state instrumentalities have also come to the private developers as hereditary traits.
For instance DDA has taken almost 12 years to come out with the first housing scheme of 8000 units. With a population of 10 lakhs in Delhi looking for a house, you are providing just 8000 units. Is DDA losing its mandate? Should it be scrapped if it’s nowhere near the competition with the private developers? It is a failure. Why to keep such a large size organization afloat – just to collect revenues from old colonies?
Initially when a private developer acquires a land, it is in raw shape, it is called agricultural land which no banker is ready to finance; the main threat to the developers. Therefore we need to fill this first gap, as in who will fund it?
Since Developer is a business entity. If this business entity is to fund its initial acquisition, there has to be a mechanism to do it. Therefore we should not assume that there is no financial instrument in place for such kind of investment.
Either you make it working capital or you make it a funding for your land acquisition. Once a particular area is in the master plan, then obviously the master plan is zoned, then it loses the agricultural land status. Now if the developer is going to acquire land in that zoned area, it means he is going to use it to develop a licensed project. So what is the apprehension in not funding it? Just because he is not acquiring agricultural land for the purpose of agriculture, he is acquiring it for the purpose of a development project. That is the complete state of being unfair to the developers.
However any institution should be open to funding it but RBI does not permit it. That means RBI is stopping the use, not stopping the misuse. Here is the first gap which RBI should look into. Can we allow funding by bankers in areas which are designated for urban development? This will bring transparency into the industry followed by confidence in people of acquiring an asset.
As per the industry norms being followed the developer is required to purchase the land by using his own capital which is creating a barrier for the fresher in the industry, since they lack healthy financial support. This in return is leading to non core competency coming into the market. Consequently anyone who was selling beverages, pan & gutkas is now entering in real estate just because he has the power to purchase the land but no skill to utilize the money in the right way.
Does that mean that the power to purchase land is the core competency? No it is not and it will not translate into core competency and we have seen that. Lot many contracting companies have migrated into real estate and failed. With large balance sheets they have purchased large tracts of land and drastically failed. So the purpose of the license has failed, the mechanism is defeated. We need to debate that first. And this debate has to be done at national level.
Thus, the first point is the gap in funding of raw land. The second point is the gap in the customers’ aspiration and their available line of credit. Most of the time, the customer comes with only about a 20% line of credit, rest has to be funded. Bankers wait for that line of credit. Between the bankers’ need and RBI regulations, there’s a gap – the multiplicity of organizations – a developer has to take 40 NOC’s before he actually meets a bankers’ compliances. Even if we optimistically take one month for one NOC, we are looking at 40 months because one NOC is related to the next, it is a cascading approval.
