Faced with enormous delays in getting approvals, Value & Budget Housing Corporation is now adopting a strategy of developing smaller five-acre housing projects that do not require the environment
ministry's clearance, thus saving the company at least 12-18 months.
Promoted by former Citibank
executive Jaithirth (Jerry) Rao
and PS Jayakumar
has also decided to cap the height of the buildings at 15 metres so that they don't require Airports Authority of India (AAI) clearance either, saving further time. "Our biggest challenge has been getting approvals on time. It delays our execution and increases cost. We can do a five-acre project faster," says Rao.
The company's first project in Bangalore was built on 30 acres of land. All real estate
projects with over 200,000 square feet of built-up space need environment clearance from state governments. Any building taller than 15 metres also requires clearance from AAI to ensure it does not fall in the flight path. Developers say delays in getting government approvals push up project costs significantly . "You are buying a land and sitting on it for two years and we are not allowed to borrow money for land. We have to use our most expensive capital and equity to buy land.
In the meantime, we incur overhead costs. So you are talking about a 100% increase in the cost of your land in two years," says Rao. Delays lead to an increase in the cost of projects, which means developers have to hike prices. "Therefore, the project becomes less affordable and fewer middle-class can buy it. It's almost as if the government of this country wants only the rich to buy homes," he adds. India is the only country, he says, which has the term 'NOC' or 'No-objection certificate' .
"We have looked at Mexico, Colombia, no other country has NOCs. Here we have to get NOCs from every single bureaucratic organisation, increasing the cost of projects," he says. VBHC, which was set up in 2009 and sells homes in the . 8-22-lakh price range, was hoping to build 15 housing projects by 2013. This plan was delayed because of approvals coming in late. Currently, the company has six projects and by the end of this year it will have 10 projects.
"By June next year, we will have 15 projects , which is exactly a year and a half late," says Rao, who founded the software company MphasiS
in 1998 and later sold a controlling stake in it to Electronic Data Systems
for $380 million in 2006. Rao had worked with Citibank till 1998.