Govt positively discourages affordable housing: Jerry Rao
Jul 20, 2012
Source : The Times of India


A promise is a promise" is what Ratan Tata had said when he gave India the Nano in 2008. Four years down, Jaithirth (Jerry) Rao expresses a similar sentiment. Rao, who had previously founded IT company Mphasis that he later sold to EDS, had promised he would do a housing project with flats in the Rs 10-15 lakh range, a category that private builders keep away from. 
He delivered on that promise recently, handing over possession of 400 such homes in Bangalore. In an interview to TOI, Rao, chairman of Value and Budget Housing Corporation, talks about his learnings. 
Are you happy with what you have achieved? 
We have proved that it is possible to sell high quality homes to India's aspiring middle classes at a decent price point in a profitable way. I'm very happy about that. But I'm unhappy that there doesn't seem to be sufficient acknowledgement of this need (for affordable homes) in the government. We should be building thousands and thousands of such homes, but it's getting hampered as approval processes are taking forever. 
Why can't we have a single window clearance for affordable housing? The laws of the land are really drafted to encourage the construction of Rs 1 crore villas or Rs 80 lakh apartments. They positively discourage homes that cost Rs 10 lakh to Rs 15 lakh. 
Take Maharashtra. You can build a farmhouse of 2,200 sqft on one acre with virtually no approvals required. So if you have 10 acres, you could build a palace, with virtually no approvals. But, in that same 10 acres, if I want to build 400 affordable housing units, it will take over two years to get all the approvals. In effect, the government supports rich people building palaces. 
Are there any other bottlenecks? 
Well, 90% of the bottlenecks lie in getting approvals. Interest rates are an issue, but we hope they will come down. 
Would government subsidies help grow this market? 
I don't want any subsidies. We have to prove that we can do this business without subsidies, which to my mind is the important thing. Maruti 800 did not ask for subsidies, nor did Nirma. 
How have countries like Brazil and Mexico aced the idea of affordable housing? 
That's because their governments are more sensible. For instance, the Mexican National Pension Fund invests in affordable housing. Their land records are much better than ours. Their approval processes are much faster. The general mindset that they work with is "affordable housing is important". I don't see anybody making speeches about affordable housing in India. 
You say that we must approach the affordable housing market from the perspective of a manufacturing industry. Can you explain? 
It's a Six-Sigma way of thinking. How can I reduce the error rates, how can I increase the turnaround time, how can I minimize the use of materials and maximize inventory movement. Let's look at two aspects -- operations and financials. We don't have the discipline in the construction industry like we have in manufacturing. You go to an Eicher factory, it's world-class. There is no waste, not a single paisa being wasted, the quality is high, all of which you don't see at a construction site. 
On the financial side, real estate expects returns of 50% to 60% of which quite a bit is off the balance sheet. In manufacturing 18% to 20% returns would be considered fantastic. So why should we then get 60% in real estate? 
What other lessons have you learnt from the first project? 
The big lesson is that we should do infrastructure like roads and the sewage treatment plant in advance. We should also probably go for smaller project sizes so that we can obtain full instead of partial occupancy certificates. For six months we have been waiting for occupancy certificates in Bangalore. 
We also learnt that people are more aspirational than we initially thought. People want to buy 2-BHK units and not studio or 1-BHK units, even if it's not in their budget. The rationale is, when I'm living in a rented flat my parents don't visit me, but if I have my own flat, my parents and parents-in-law will come. And nobody is thinking of selling out in five years and moving to a bigger place. They think that this is going to be theirs for the next 20 years. 
Critics have been wary of the affordable housing sector on the grounds that they might not be able to string together a unifying social fabric... 
We don't seem to have any of those issues. We are getting people from all walks of life -- retired government officials, bankers, IT and BPO professionals, small business owners, people from all religions, from all parts of the country. One thing is common, everyone wants an aspirational product. And everybody wants his or her surroundings clean. We are now planning similar projects in Mumbai, the National Capital Region, Baroda, Chennai, and a second one in Bangalore. 

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