Nano solution to housing shortage
The Financial Express, April 30, 2009, Page 7
Bimal Jalan, former RBI governor and Rajya Sabha MP, is planning to do a Nano on rural housing. He is bringing together private banks, National Housing Bank, developers and the government to establish a new structure of ‘build-and-go’ homes. Jalan said the new model would work on the lines of the PCOs that changed the way India communicates. In an interview with Sunny Verma & Subhomoy Bhattacharjee of FE , Jalan also said that Indian economy has hit the bottom and GDP growth will be at least 6% this fiscal.
Is the threat of a looming slowdown behind us now?
I think so. I think the general consensus is that the rates of decline have become lower than after September. Now the feeling is that it won’t be as bad, the housing demand is picking up and our situation was not that bad anyway. I hope our growth rate in the worst circumstances will be 5-6%. The government is talking about a little better—it can’t go much more down. Just as there is a peak, there is a bottom. We have hit the bottom.
RBI has said the BPLR system has become irrelevant. What could be an alternative?
The alternative is that BPLR should mean what is says, which can fluctuate 50-100 basis points upward or downward. But you can’t, say, have a prime lending rate and then give 400 basis points higher or below. Your BPLR should be more transparent. So when you are going to a bank as a household borrower or as a corporate sector, you can say that I am a prime borrower and this is the rate and this is what it should mean. It should be somewhere at the bottom.
Your interest in rural housing?
When I was the president of NCAER(1998-2008), we thought a study based on field work should be done on rural housing. That’s how I got involved. This is the interesting thing about NCAER. Very few organisations do sample surveys. This study is based on actual ground level work. From our wider perspective, it is of equal importance because there is a social aspect to Indira Awas Yojna and many other such policies. There is also a banking policy with loans below 4% for certain amount of housing. Government and everybody are interested in rural housing as 65% of our population is in rural areas. If you provide for rural housing, for example infrastructure is very important, it becomes an extremely important input to increase rural employment. That’s how this started.
What is the plan?
I have had preliminary discussion with the NCAER, National Housing Bank, HDFC etc to see in what way we can improve access. The next step is how to accomplish this? This requires a lot of thought. I have been in touch with S Sridhar (former CMD of NHB, currently CMD of Central Bank of India). There are two three things that we need to do together. One is to follow the PCO (public call office) model. In many countries like Mexico and South Africa, you have similar build-and-go houses. The idea is to minimise inventory.
How will the PCO model work?
Say at every ten kilometers there is a ‘home depot’ or housing centre, whatever name one decides. These are just concepts at the moment. There are two-three designs. These are linked with the help of government and NHB, as well and all the banks involved in providing finance. The housing models are available, then we also decide what is the material required for different kinds of housing. And let’s imagine a farmer, he just walks in (to this home depot), there is a franchisee of (such housing). Just think of a concept where there is a one stop shop for housing and somebody walks in, there are 4-5 designs with different level of costs, requiring Rs 2,000 per month to Rs 7,000 per month. You chose the kind of housing that you need. It is built with all pre-fabricated material, not necessarily cement or anything, and it is supplied just-in-time. This happens in the US, in Mexico. There will be an agency that will construct these houses. So the concept is that you bring together so far as the inventories are concerned just-in-time.
Will this idea work?
You take Nano. Why is Nano so exciting? Who would have thought you can produce a competitive design worked out up to the marketing standards. They have done it.
Will these places work as the franchisee arms of the banks?
Not necessarily. That has to be worked out. There will be agents’ shops, also like PCOs. Everything will be brought together in some way, just as your insurance agents are deposit mobilisers for the banks.
Will it require any changes in the Banking Regulation Act or other Acts to permit such a structure?
Very minor. If they are required, they should be brought together. I think it’s more of a concept that has to be actually franchised like insurance policy, health insurance. You have the agent come to your house and give the policy; you pay your premium. There is no subsidy involved.
So the buyer has own his land on which a house will be built?
Yes, of course. But if they don’t have the land, then they can find a place where they can buy the house. Or they can do collective housing. These are all concepts, which have to be worked on. But there is tremendous scope because the pre-fabrication technology has come and we already have these concepts whereby by minimising inventories, and with lower costs, you can minimise the need for architects and so on. Somebody can put it all together and give you a house.
Some time back, NHB has mooted the idea of a Rs 1 lakh house.
We are working on it. The idea is to put it together, to give some traction and to show that it can be done. And it cannot be done in any bureaucratic way. I mean it has to be done through mobilising the resources that we have in rural areas for supply of materials, which can be used by the constructor under the supervision of somebody who knows about them.
But what is the incentive for developers to come forward for this idea?
Why should anybody sell anything? What was the incentive for a person who became an agent of a PCO? It (pricing of houses) would be ‘cost plus’. The idea is to minimise the cost and maximise durability.
Wouldn’t it be a very thin margin game?
For demand there is no problem, as long as there is demand for rural housing. We have estimated that the demand is pretty high and most of the concerned people have their own land or plots.
Can a single agency deliver the kind of rural housing needed in India?
Now we have the National Housing Bank. Earlier NHB was part of the Reserve Bank of India. NHB now is a separate agency and at the moment it doesn’t have the kind of resources which are required. If there is enough will, and everybody is now talking about demand for rural housing, and this can be pooled together and NHB—or those kinds of agencies—can initiate this even on a trial basis, I am sure that everything will come together.
What sort of investment would such a project involve?
I have no idea. On 13th (May), we are launching a discussion.
The Financial Express, April 30, 2009, Page 7
Bimal Jalan, former RBI governor and Rajya Sabha MP, is planning to do a Nano on rural housing. He is bringing together private banks, National Housing Bank, developers and the government to establish a new structure of ‘build-and-go’ homes. Jalan said the new model would work on the lines of the PCOs that changed the way India communicates. In an interview with Sunny Verma & Subhomoy Bhattacharjee of FE , Jalan also said that Indian economy has hit the bottom and GDP growth will be at least 6% this fiscal.
Is the threat of a looming slowdown behind us now?
I think so. I think the general consensus is that the rates of decline have become lower than after September. Now the feeling is that it won’t be as bad, the housing demand is picking up and our situation was not that bad anyway. I hope our growth rate in the worst circumstances will be 5-6%. The government is talking about a little better—it can’t go much more down. Just as there is a peak, there is a bottom. We have hit the bottom.
RBI has said the BPLR system has become irrelevant. What could be an alternative?
The alternative is that BPLR should mean what is says, which can fluctuate 50-100 basis points upward or downward. But you can’t, say, have a prime lending rate and then give 400 basis points higher or below. Your BPLR should be more transparent. So when you are going to a bank as a household borrower or as a corporate sector, you can say that I am a prime borrower and this is the rate and this is what it should mean. It should be somewhere at the bottom.
Your interest in rural housing?
When I was the president of NCAER(1998-2008), we thought a study based on field work should be done on rural housing. That’s how I got involved. This is the interesting thing about NCAER. Very few organisations do sample surveys. This study is based on actual ground level work. From our wider perspective, it is of equal importance because there is a social aspect to Indira Awas Yojna and many other such policies. There is also a banking policy with loans below 4% for certain amount of housing. Government and everybody are interested in rural housing as 65% of our population is in rural areas. If you provide for rural housing, for example infrastructure is very important, it becomes an extremely important input to increase rural employment. That’s how this started.
What is the plan?
I have had preliminary discussion with the NCAER, National Housing Bank, HDFC etc to see in what way we can improve access. The next step is how to accomplish this? This requires a lot of thought. I have been in touch with S Sridhar (former CMD of NHB, currently CMD of Central Bank of India). There are two three things that we need to do together. One is to follow the PCO (public call office) model. In many countries like Mexico and South Africa, you have similar build-and-go houses. The idea is to minimise inventory.
How will the PCO model work?
Say at every ten kilometers there is a ‘home depot’ or housing centre, whatever name one decides. These are just concepts at the moment. There are two-three designs. These are linked with the help of government and NHB, as well and all the banks involved in providing finance. The housing models are available, then we also decide what is the material required for different kinds of housing. And let’s imagine a farmer, he just walks in (to this home depot), there is a franchisee of (such housing). Just think of a concept where there is a one stop shop for housing and somebody walks in, there are 4-5 designs with different level of costs, requiring Rs 2,000 per month to Rs 7,000 per month. You chose the kind of housing that you need. It is built with all pre-fabricated material, not necessarily cement or anything, and it is supplied just-in-time. This happens in the US, in Mexico. There will be an agency that will construct these houses. So the concept is that you bring together so far as the inventories are concerned just-in-time.
Will this idea work?
You take Nano. Why is Nano so exciting? Who would have thought you can produce a competitive design worked out up to the marketing standards. They have done it.
Will these places work as the franchisee arms of the banks?
Not necessarily. That has to be worked out. There will be agents’ shops, also like PCOs. Everything will be brought together in some way, just as your insurance agents are deposit mobilisers for the banks.
Will it require any changes in the Banking Regulation Act or other Acts to permit such a structure?
Very minor. If they are required, they should be brought together. I think it’s more of a concept that has to be actually franchised like insurance policy, health insurance. You have the agent come to your house and give the policy; you pay your premium. There is no subsidy involved.
So the buyer has own his land on which a house will be built?
Yes, of course. But if they don’t have the land, then they can find a place where they can buy the house. Or they can do collective housing. These are all concepts, which have to be worked on. But there is tremendous scope because the pre-fabrication technology has come and we already have these concepts whereby by minimising inventories, and with lower costs, you can minimise the need for architects and so on. Somebody can put it all together and give you a house.
Some time back, NHB has mooted the idea of a Rs 1 lakh house.
We are working on it. The idea is to put it together, to give some traction and to show that it can be done. And it cannot be done in any bureaucratic way. I mean it has to be done through mobilising the resources that we have in rural areas for supply of materials, which can be used by the constructor under the supervision of somebody who knows about them.
But what is the incentive for developers to come forward for this idea?
Why should anybody sell anything? What was the incentive for a person who became an agent of a PCO? It (pricing of houses) would be ‘cost plus’. The idea is to minimise the cost and maximise durability.
Wouldn’t it be a very thin margin game?
For demand there is no problem, as long as there is demand for rural housing. We have estimated that the demand is pretty high and most of the concerned people have their own land or plots.
Can a single agency deliver the kind of rural housing needed in India?
Now we have the National Housing Bank. Earlier NHB was part of the Reserve Bank of India. NHB now is a separate agency and at the moment it doesn’t have the kind of resources which are required. If there is enough will, and everybody is now talking about demand for rural housing, and this can be pooled together and NHB—or those kinds of agencies—can initiate this even on a trial basis, I am sure that everything will come together.
What sort of investment would such a project involve?
I have no idea. On 13th (May), we are launching a discussion.
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