Real Estate Intelligence Service, Tuesday, November 10, 2009

Sustainability can lead to breakthrough innovations

Sustainability can lead to breakthrough innovations
The Economic Times, November 10, 2009, Page 1

Prahalad Says There’s Business For Indian Firms In His Eco Theory

HE’S going green. After core competence and the bottom of the pyramid, the world’s best-known management guru of Indian origin, CK Prahalad, is talking sustainable development. Why? Because, as he argued in a recent article in the Harvard Business Review, “sustainability is the mother lode of innovations that yield both bottom-line and top-line returns”.

In an exclusive interview to ET NOW’s R Sridharan, the Paul and Ruth McCracken professor of strategy at Stephen M Ross School of Business at the University of Michigan talks about sustainable development, the bottom of the pyramid, and his own intellectual journey over the years. Excerpts:

You say there’s no alternative to sustainable development for companies. That’s a sweeping statement to make.

I am just recognising the inevitable. If you look at the water shortage, high commodity prices and certainly global warming, the need for sustainable development is pretty obvious. So, my starting point is don’t deny the obvious, get on with it and innovate.

But most companies today are fighting for wafer-thin margins. So, what’s the incentive for them to invest precious capital in sustainable technologies or processes?

If you deeply understand sustainability, then it’s just like the quality movement some 30 years ago. If you recall, there was a lot of debate about whether quality will increase cost during that period.

And what did we find?

That if you deeply understand quality and you put methodology in place, costs automatically come down. I believe sustainability can be the next quality challenge. It’s going to drastically reduce costs and increase consumer acceptance. Don’t look at sustainability as compliance and regulation, but as an opportunity for breakthrough innovation.

India can take innovations to US

INDIA can argue that it’s not a big polluter compared to developed countries, so the companies here don’t really need to start thinking of sustainable development. What would you tell such companies?

In India, you don’t have to start (on sustainable development) because you are a big polluter. You can start because there’s a shortage of resources. If I look at a washing machine that recognises when electricity was cut off and starts the wash cycle from there and not the beginning, then it saves energy, it saves water and it is acceptable in India because it is sustainable development and it’s good business. The beauty of this is if you innovate here, you can take those innovations back to the US.

you also talk about consumers at the bottom of the pyramid. But the irony is if we create consumers out of millions of poor people, we are putting greater stress on the environment. How does this marry with your argument on sustainable development?

That’s an important question. As you start including additional 4 billion people into the process of globalisation, you are going to put a lot more pressure on sustainable growth. Therefore, inclusive growth and sustainability are joined at the hips. In fact, what inclusive growth and sustainability force us to do is to recognise how to do more for more people with less. And this is the organising principle I am proposing.

Finally, what next from CK Prahalad?

If you look at my work, they are centered around four areas: globalisation, role of connectivity, inclusive growth and sustainability. Nobody has looked at all four of them and said what are the linkages. So it’s this intersection of the four that’s going to create the next big opportunities for management, the next big opportunities for humanity in general.

India Eco Summit: 'Industry must help in skill building

India Eco Summit: 'Industry must help in skill building
Business Standard, India Economic Summit 2009, Page 3

Kirtika Suneja / New Delhi

Just over a10th of school-going children in India end up attending college.

With nearly two-thirds of India’s population under the age of 35, India has the world’s largest pool of young people. However, of the 220 million school going students, only 26 million go to college. So, creating the critical mass to build world-class institutions is the main problem that India faces in building world-class education.

“We need to increase the number of students going to college incrementally and also develop the infrastructure to do so. The total number of young people employed is around 509 million. So, we expect the industry to collaborate with us for skill development,” said Union Education Minister Kapil Sibal.

By opening the higher education system to players outside India, the country would collaborate with foreign education providers to build world class universities.

Sibal said that the economic growth of any country depends on its human resource and that the college going population in the US is 63 per cent and more than 50 per cent in Europe. However, this number stands at 12.4 per cent in India.

Rajendra S Pawar, Chairman of the NIIT Group pointed out three defects in the Indian education system that are hampering its growth. “Structural rigidities and disconnections discourage mobility in education. Second, government is the deliverer and regulator of education and there is an absence of market principles that match demand and supply. The third defect relates to funding as there is a large amount of government funding, some amount of philanthropic funding and less amount of private funding,” noted Pawar.

However, the minister stated that the Indian education sector is not ready for the market dependence of education as the country can’t wind up education institutes becasue the stock markets crash.

Educomp Solutions’ MD, Shantanu Prakash said that both skills development and vocational development are imperative for the Indian education sector as universal access to higher education is our goal. “Both money and political will are available today and we must harness the intellectual capital of dtudents and teachers. In fact, we can have special economic zones for education where the laws of capacity and price control can be relaxed in building worls class institutions,” Prakash said.

On this, Sibal explained that education providers can't earn money from fees paid by students and also, they should be allowed to make surpluses. “We need to create world class institutions which will allow flexibility in student communities,cross fertilisation of disciplines and transparency. However, this will follow after we set the school system right,” he added.

UP waives stamp duty on land for IT projects

UP waives stamp duty on land for IT projects
The Financial Express, November 10, 2009, Page 19

Press Trust of India

Lucknow: The Uttar Pradesh government has decided to waive off stamp duty on land for Information Technology units and call centres being set up in the state.

“In the wake of the global meltdown, the state government has also decided to extend the time limit of completion of IT projects by two years,” principal secretary Information technology Chandra Prakash said here on Monday.

Prakash said the allottees will be required to get their development plan approved from the competent authority within 42 months of getting possession of land.

“Similarly, these units will have to obtain completion certificate of land allotment within five years and execute the project within seven years,” he said.

He said Information Technology units, which fail to complete the projects within the stipulated time will be required to repay stamp duty concession along with interest.

“The Uttar Pradesh government has also decided to reduce lease rent of commercial plots and properties being allotted through bid to Information Technology units till March 21 to 1% per annum from 2.5% per annum at present,” Prakash said.

He said any unit that wants to pay the lease rent one time will have to pay only 11% instead of 27.5%.

Second bid to modernise New Delhi rly station fails

Second bid to modernise New Delhi rly station fails
The Hindu Business Line, November 10, 2009, Page 15

Mamuni Das

New Delhi, Nov. 9 The second attempt to start work on modernising the New Delhi railway station on a public private basis has failed. The bidding process for the Rs 12,000 crore project is all set for a quiet burial — the bank guarantee of Rs 25 lakh submitted by each of the seven bidders in March this year for the qualifying bids were valid till October 10 only. The Railway Ministry is unlikely to extend the date.

The consortia and some of their members who had submitted bids for the New Delhi station modernisation are Tata Realty and Infrastructure and Grandi Stazioni SPA (Italy); Larsen and Toubro Transco; DB Realty and Deutsche Bahn (German Railways); Nishok Realty, Spanish Railway, Posmar Inversions, Yoman Infrastructure, Parnesh Real Estate; Morgan Stanley Infrastructure and VNR Rail Infrastructure; KMC Construction, China Railway 18th Bureau Group; GVK Developmental Projects, Leighton.

Confusions in the process

The Indian Railways had an option to extend the bank guarantee period through mutual discussions and keep the bidding process alive. But, officials have decided against it. “We have decided to wind up the request for qualification process. As it is, many DDA approvals were required for the project…It is better for us to get these approvals before we move ahead to the bidding process for this project,” said a Ministry official.

The New Delhi railway station redevelopment project appears to be jinxed as the first request for qualification process was cancelled because there was confusion over the interpretation of the “cross-ownership” clause in the document. In the first half of 2008, the Railways had received 13 bids for the project.

Those bidders who had submitted qualifying bids in the first round of qualifying bids but opted in the second round include DS Construction; Maytas Infrastructure; Emaar-MGF and Gammon; Reliance Infrastructure; Sadbhav Engineering and SREI.

Costs involved

The Railway Ministry had decided to undertake re-development and modernisation of the New Delhi Railway station, including the surrounding railway land, comprising about 86 hectares through public-private partnership on design, build, finance, operate and transfer basis.

The cost of the project, at Rs 9,000 crore, included mandatory capital expenditure, the real estate development for commercial purposes and interest during construction. The successful bidder was supposed to enter into a long-term concession agreement (of about 45 years) with the Indian Railways, according to the RFQ document.

For the technical consulting services (that include architectural inputs) of the station, Hong Kong-based Terry Farrell had been appointed around July 2007 for advising Railways at a cost of about Rs 7 crore.

Later, around April 2008, the Railways had selected London-based legal firm CMS Cameron McKenna for providing legal consulting services, while Grant Thornton was selected to provide advisory services on the financial issues.

AFFORDABLE HOUSING A BIG OPPORTUNITY: NEED FOR PUBLIC-PRIVATE PARTNERSHIP TO TAP THE POTENTIAL

AFFORDABLE HOUSING A BIG OPPORTUNITY: NEED FOR PUBLIC-PRIVATE PARTNERSHIP TO TAP THE POTENTIAL

The Economic Times, November 10, 2009, Page 10

Arindam Ghosh New Delhi

Availability of affordable residential property is the need of the hour for the country's growing population but a sustainable development of low cost housing requires a partnership between the government and the private sector. The role of public-private-partnership (PPP) where the government provides better infrastructure and expedites project clearance while the private sector develops the land was the focus of the second session at The Economic Times Realty Convention, 2009.

Anshuman Magazine, chairman and managing director of real estate services company CB Richard Ellis India began the discussion by stressing that the most critical aspect of housing development is infrastructure and that the concept of affordable housing has to be defined since what can be affordable in Mumbai could be a luxury in Hyderabad.

He pointed out that there is no shortage of land for housing or any other project, but the problem is of infrastructure. "If more infrastructure can be developed by the government more land can be developed by the real estate players" he said.

The participants at the session also brought out concerns related to delays in getting clearances from the government. Rajeev Talwar, executive director at DLF Ltd, said, "Time taken for approvals is too long, sometimes approvals with 30 or 40 authorities itself takes about two to two and half years. No one minds paying the money for approvals, but yes the time taken for approvals has a greater cost."

Naveen Raheja, managing director of Raheja Developers also highlighted the concerns of the real estate firms and asked the government to fasten their process of giving approvals. He said that the people who facilitate the process of clearing projects, should be able to take decisions quickly. "There are beautiful policies and schemes which can make a revolutionary change in the country for housing, but please give us that good mindset of people who will facilitate. If they really understand us, they can sign up in five minutes instead of five months," he said.

Other speakers highlighted the significance of urban affordable housing segment as it forms the largest chunk of the domestic housing market.

It has a steady demand growth that does not shrink or fluctuate with the fortunes of the stock markets or the global economy. It is much less volatile compared to the demand for luxury apartments which has its share of speculative buying and many people use it as a long term investment rather than a place of residence. The panellists noted that the private developers need to exploit the long term business opportunities that lie locked in affordable housing.

PK Mohanty, mission director of Jawaharlal Nehru National Urban Renewal Mission (JNNURM), said, "Affordable housing is a lucrative business proposal. Although profit margin may be small at the bottom of the pyramid, but when you take the volume of millions of Indians living below poverty line with as much as 62 million slum dwellers and many of them occupying very valuable land, I think affordable housing could be made a strong business proposition." He stressed on the need for more PPP in affordable housing.

Rebooting Affordable Housing

Rebooting Affordable Housing
The Economic Times, November 10, 2009, Page 8

Arindam Ghosh and Souvik Sanyal New Delhi

The global economic slowdown which shrunk availability of credit and led to meltdown in asset prices including that of real estate has had at least one positive fallout. Almost all property developers focused on bringing low cost affordable housing to attract the common man and perk up demand.

The Economic Times Realty Convention, 2009 held on 27th October in New Delhi brought together a string of stakeholders from policymakers to property developers to discuss the changing prospects of the housing sector in the country.

The focus on affordable housing over the last one year is a marked change from the past when real estate players were primarily targeting high priced premium housing schemes. "Part of the slowdown was caused by rush of real estate companies to go for top-end housing," said urban development minister Jaipal Reddy while addressing the convention.

The urban affordable housing segment forms the largest chunk of the domestic housing market. Typically, it has a steady growth in demand that does not shrink significantly with the drop in stock markets or the global economy.

To support the growth of affordable housing, the urban development ministry is in talks with the ministry of finance to make an interest subsidy and other tax incentives to borrowers on loans of Rs 20 lakh to be raised to Rs 30 lakh.

Rohtas Goel, CMD of Omaxe Ltd and president of National Real Estate Development Council (NAREDCO), said that customers currently are going in for needbased housing rather value-based housing.

He assured the government that all the real estate developers will work closely with the government in achieving the social objective. But he raised concerns over the direct tax code and asked for more relaxation that need to be given to real estate developers.

Mr Reddy spoke about a sustainable habitat policy under which new and emerging concepts of developing green buildings and other eco friendly infrastructures will be considered. "Now we are going to launch a project to create sustainable habitat aimed at developing green buildings," the minister said.

Green buildings will be designed in such a manner so that it will have a longer life cycle, and help in conserving natural resources like water, while consuming minimal power and energy. These infrastructures are expected to play an important role in offering environmental, economic and social benefits.

Mr Reddy urged realty players to develop more "affordable homes" and "green buildings" and invest in other eco-friendly infrastructures keeping in mind long-term sustainability for the environment. Stressing on the need to create a pollution-free environment, he said, "We need to avoid further pollution. Water in India is not only wasted but polluted."

He said that a technical expert group from France is working on water improvement project in Nagpur and the initiative could be extended to other parts of the country.

Urban development is intrinsically linked to the provision of civic amenities to all the citizens living in urban areas as well as empowerment of urban local bodies to enable them to become financially sustainable democratic institutions capable of providing good quality civic services.

The ministry of urban development along with the ministry of housing and urban poverty alleviation had launched the flagship scheme Jawaharlal Nehru National Urban Renewal Mission (JNNURM) for a period of seven years (2005-2012) with an allocation of Rs 50,000 crore, to develop quality infrastructure and governance in the urban cities of India.

Under the initiative almost 90% of the funds is to be used for developing basic services like drinking water facilities, sewerage, underground drainage, solid waste management, storm water drains and so on, further around 10% of the fund has gone for developing infrastructural facilities such as roads and fly-overs. The proposed Rajiv Awas Yojana is designed to enable existing slums to avail of the same amenities as the towns in the country.

The real estate players highlighted their concerns for getting project clearances. They felt that the process to get the green signal is very cumbersome and a lot time and money gets wasted in the process. The provisions should be made more flexible and friendlier towards construction firms.

The minister spoke on the e-governance initiatives that are being worked out as part of the JNNURM plan, an initiative that he said will help reduce red-tapism and corruption. Replying to the question on enabling faster land approvals and other regulatory clearances, the minister said that the state government's should be more transparent and uniform in their policies. "I want all of you to recognise the fact that we have some structural constraints in advising the state governments. State governments should be little more transparent in their policies," he said.

The union minister also pointed out the need for the high-rise buildings for meeting the demand of increasing population towards housing in big cities. "Water and transport" are the two conditions required for the growth of an urban city, he added.

Mr Reddy said that metro train projects for Delhi, Bangalore, Mumbai, Chennai, Hyderabad and Kochi were sanctioned to provide safe and quick public transport to the commuters and avoid traffic congestion. "Metro can play an important role in facilitating the development of small towns, which will have all the amenities, and facilities of a large city, the union minister said.

The convention also touched upon the issue of worker's welfare and the government's role in ensuring it. Mr Reddy asked the real estate developing companies to come up with suggestions as to how construction workers can be provided basic facilities though partnership between government and private sector.

Talking about mounting grievances of consumers of housing sector, M Ramachandran secretary in the ministry of urban development, pointed out that a real estate bill is due to be presented in the next parliamentary session, which would formulate an integrated system to address consumer grievances.

The bill would also look at the need and requirement of affordable housing in the coming years, to ensure optimal capacity development. Mr Ramachandran stressed on the role of basic public transport system in building a holistic housing hub in the national capital region(NCR), as the housing capacity in the capital is nearing saturation. "Improved transportation in the NCR would encourage housing opportunities in the region," he said.

Arup Roy Choudhury, chairman of National Buildings Construction Corporation(NBCC) said that the builders and developers should be mandated to adopt a transparent pricing structure, wherein consumers are informed about the construction costs, tax levies and even the profit margin enjoyed by them.

He also said that stringent penalties should be imposed on builders and developers if they fail to deliver as per committed terms, adding that a regulatory organisation should be set up to supervise the same.

Considering the fact that affordable housing is still out of reach for a large percentage of population, R V Verma of National Housing Bank said that in order to reach out to the people in the low income segment, financing procedures of banks ought to be simplified. However, the due diligence process for giving loans should not be compromised upon to avoid the asset bubble faced by the US economy due to the sub-prime lending.

HOW TO MAKE LOW COST HOUSING AFFORDABLE: EASY FINANCING ONE OF THE SOLUTIONS

HOW TO MAKE LOW COST HOUSING AFFORDABLE: EASY FINANCING ONE OF THE SOLUTIONS

The Economic Times, November 10, 2009, Page 12

Increasing the supply of low cost housing is one thing but ensuring it remains 'affordable' for the common man is also crucial. A growing number of households are paying up to half their income for a place to live and one of the primary solutions for addressing the problem of building affordable housing is lack of easy financing.

Even when the property developers are committed to build affordable houses, the consumers in the low-income group still find it out of their reach. This is primarily due to lack of proper financing avenues for this section of consumers.

Due to the fear of default on loans, banks have been reluctant in lending to the poor which deprives the lowincome group from availing housing loans. Even though the government has made a strong case for creation of Housing Mortgage Guarantee Fund with a corpus of about Rs 15,000 crore to broaden availability of loans for affordable housing, it still remains to be seen how fund flows to this segment of society.

"The industry is aware of the challenges faced by the country due to shortage of around 2.6 crore houses, 98% in economically weaker section and low income group category. In this regard I feel the process of financing for this group of population should be eased, in order to turn the demand in actual sales," National Housing bank executive director, R V Verma said during The Economic Times Realty Convention, 2009.

He added that there is a critical need for a sustainable model of housing finance in India and most of the processes are not transparent. While urging the government to relax terms and conditions of financing for the lowincome group, he cautioned that the due-diligence process of sanctioning a loan should be guarded to mitigate the dangers of bad debt for the lenders. "If the due-diligence process is done away with, it might lead to a real estate bubble, which in turn would eventually lead to a economic crisis, like the one in the US," Mr Verma warned.

Highlighting the role of government, Amit Mookim director & headreal estate at consultancy firm KPMG said that even when the industry is enthusiastic about providing affordable housing to the consumers, it cannot be the sole responsibility of the real estate sector. The government should adopt a subsidy approach to support housing for the lowincome group, he opined.

Besides availability of finance for the low-income group, another crucial issue highlighted at the convention was the supply of land. According to KPMG, about 2.1 million new low income group(LIG) and middle income group(MIG) houses would be required in the seven major cities alone. To meet the humungous demand, supply of land for real estate development would be essential.

The panellists suggested that land clearance procedures for an affordable housing project should be relaxed and a part of the available land should be reserved for such projects. This would in turn ensure lower cost of land and allow builders to price it at a lower level after keeping a comfortable profit margin.

The need to make the pricing more lucid to safeguard the interest of consumers was also pointed out. "Housing prices should be made transparent. The developers must reveal their costs at each level and also the profit margins enjoyed by them," Arup Roy Choudhury, chairman of National Building Construction Corporation(NBCC).