May 29, 2007

Incentives to developers will improve quality

Incentives to developers will improve quality of development and real estate market in India. The steps taken here would professionalise the market and impact the demand side of the market. 1. Property Act: All mature markets have it and we need one as well. The objectives of this act should be :- (a)ensuring end users rights are protected (b) improving the level of professionalism in industry improves (c) increase transparency and ease of availability of market information. 2. Development of institution and individual link for investment: This step would do away with strata titles, reduce ownership issues and check inflow of unaccounted wealth in real estate. Each of these would improve quality of buildings, ease transfer of property and increase transparency levels. Introduction of Real Estate Investment Trusts (REIT) and/ or Real Estate Mutual Funds (REMF) would be the first step in this direction. 3. Incentives to developers to improve quality: The shell structure of almost all of India’s high rises is RCC and not steel. This is because steel’s costs is prohibitive and we don’t have enough trained human resources for this task! Another fact is: most buildings in India will not be able to stand the test of time. These constructions try to replicate the international look but the quality of construction, level of maintenance and finishing levels of the completed product don’t increase the life of the NCR office space absorption building. Capital incentives should be given various manufactures of building material to improve their products and to the developers to use better quality material. 4. Exit routes for global developers: Although FDI in real estate has been allowed, clarity is needed on various means by which international investors can take their capital out of these projects. The REITs and REMFs would boost confidence of retail and institutional investors. For India, we can learn a lot from experiences in western and Asian markets to determine which model would be best suited here. 5. Steps to maintain cost advantage: Over the past years the price of real estate had matched those in many western countries. However, due to the demand and supply equations India still has some micro-markets which provide building options at competitive rates. Forward planning is vital for MNCs and Indian firms expanding their footprint in India. Long-term planning is needed by the government to ensure that macro economic parameters allow Indians to maintain the cost gap compared to developed markets and BRIC nations. Source://Financial Express