Another building collapsed in Chennai, India. What could be the causes of building collapse at such regular intervals in various Indian cities? Who is responsible for illegal and low quality construction? What can home buyers, municipal body, and builders do to stop illegal construction and low quality construction in India?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

June 28, 2014 was a disastrous day in Chennai. A 12-story building named ‘Trust Heights’ under construction collapsed in heavy rain in Moulivakkam, Porur. Officials confirmed that 14 people had died amid fears that the death toll could rise as many others remained trapped under the debris. Tamil Nadu chief minister J Jayalalithaa visited the site on Sunday, June 29, 2014 and ordered a thorough probe. Reason for building collapse has been cited as ‘structural defects’.

Police have arrested six people, including promoters and employees of ‘Trust Heights’ developer Prime Sristi Housing Pvt Ltd, Madurai, in connection with the collapse.

Well, this was Chennai. But this has been happening in the country for far too long and at far too many places. In recent months various buildings have collapsed in Thane, Mumbai, Delhi, Goa, and host of other cities. Did anything change? Did local municipal bodies or town planning departments bring in new laws? Well, given the current state of inefficient and colluding bureaucracy, we can’t expect much from the babus.

What are the causes of buildings collapse at such regular interval across various Indian cities?

What could be the causes of building collapse at such regular intervals in various Indian cities? There are many theories going around and one among them is the use of sub-standard material in building construction. However, if one digs deep, then it can be safely said that most of these collapses happen because of corruption. It is now commonly believed that builders flout building codes by paying bribe to babus of governing authorities.

Take the case of Campa Cola compound in Mumbai where illegal floors were built in 1980s. The recent DLF case in Gurgaon is also a prime example of illegal construction. There are many such cases where builders and babus have colluded to maximize their gains. And there is no way that these people will care for the plight of common man and workers working on these building sites. Bottom-line of their balance sheet is what they are worried about. Well done!

Home buyers also overlook the construction quality part. Because of soaring real estate prices in metros, home buyers tend to buy whatever is served on their plate and thereby a compromise on construction quality is made. So, there is no bottom-up pressure on authorities and builders from the home buyers. And things continue to drift along like this. One building collapse here and one building collapse there…its ok, it happens. Phew…

Who will be penalized?

Well, now that, this builder in Chennai has been arrested, he and his associates may be penalized. But is this the solution? Will this penalty make sure that no such future mishaps happen? What could be done to eliminate such instances?

Solution:

We are not experts in building construction codes. We are just creating awareness through this article about the urgent need of overhaul of construction practices in India.

• Things that a home buyer can do:

1. It is impossible for an individual buyer to conduct construction quality check of a project he/she has invested in. However, when you buy an under construction home from the real estate developer, a few unannounced visits to the construction site will help you understand the quality of construction.
2. Ask for a copy of soil test report from the builder – Before construction, all builders will conduct soil test. You as a home buyer should be extrovert enough to ask for the soil test report. This soil test report will ensure that building is not standing on a shaky ground. Maybe poor soil condition could be the reason that this building in Chennai collapsed. So, insist on this report from your developer.
3. Ask for a certificate of concrete mix from your real estate developer. Strength of the concrete mix is extremely important to analyze because it will directly impact whether the building can withstand the structure load or not.
4. Visit the construction site and check the external wall thickness. The standard practice is to have 9 inches thick external wall.
5. As a buyer, you bought the apartment by looking at brochures, and sample flat. Make sure that amenities, fittings, and apartment specifications that are provided in brochures and sample flat are also included in the legal builder buyer agreement. During the construction stage, verify if things are going as per the agreement or not.

• Things that Authorities can do:

Well, an individual buyer can do very little in his/her capacity to check the construction quality of real estate projects. However, authorities have the wherewithal to completely eliminate low quality construction and illegal construction.

At the moment, what they do is simply issue the license based on the building plan given by the builder. If the plan meets their guidelines, a license is granted. And builder commences construction. Once the construction is complete, the authority will inspect the site and based on the observations of the completed building, a completion certificate is provided to the builder.

They do not do anything during the construction period. And that is where most of the things go wrong. That is where sub-standard material is used. That is where illegal floors are added up, etc., etc.

So what can authorities do during the construction stages?

Nominate third party private construction quality check agencies across the country. These private agencies with top civil, structural engineers shall enter into an agreement with builder and home buyers to carry out periodic construction quality check. The agency will update home buyers and authority on a regular basis about the quality adherence of a building. Who will pay to this professional and private agency? Home buyers can easily pay for the services of this agency.

Let’s take an example – A builder submits the building plan to Chennai development authority for developing a group housing society comprising of 600 housing units. Assuming that building plan adheres to the guidelines and a license is issued. Along with the license, the builder should be mandatorily asked by the authority to sign on a third party private agency for construction check. Even if the cost of services of such an agency is Rs 10 crore, it can be evenly distributed among all the home buyers. This third party agency with top talent in its rank can monitor the real estate project from foundation to completion, thereby ensuring peace of mind to every home buyer and workers working on that building project.

• Things that Builders can do:

With so many cases of illegal constructions, many people view ‘builders’ as thugs and corrupt. This may not be true; however, that is the perception. It is important for builders to stick to building codes and deliver on the promises that are made when selling an under construction flat.

Dear Builder, Please follow the construction guidelines ethically and unequivocally. Thanks!

This article is primarily written for creating awareness among home buyers, consultants, architects, builders, government authorities to seriously assess the current state of construction in India. We cannot afford to lose so many lives to such mishaps. We encourage comments from all stakeholders. One can also write on this issue and we will carry forward that message in our next columns.

Look forward to active participation.

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Raj Nagar - an emerging residential locality in Ghaziabad

Delhi NCR is the hub of realty in North India, which is supported by various completed infrastructure projects, and many in the pipeline for the near future. The national capital of Delhi is the biggest urban agglomeration in the country and has many localities as a part of its growth and development strategy. Ghaziabad is one such city which enjoys many benefits because of its strategic location and good connectivity. Out of the many vibrant localities in Ghaziabad, Raj Nagar stands out because of its affordable housing category. It has been the top choice for middle income group people. There are many options of housing available namely, ready to move in homes to builder floor in Raj Nagar.

This has resulted in investment in real estate in various micro markets of Ghaziabad. Seasoned investors, NRI have invested in realty market of Ghaziabad. However, due to lack professional Property Management Companies in Ghaziabad, their apartments which are now complete are still lying vacant. These investors are reluctant to lease their apartments in their own absence. 

Affordable housing has been the cornerstone for investment as well as rentals here. Apartments for rent in Raj Nagar are also available at reasonably low rates. The dream of affordable housing has been made possible here in Delhi NCR as compared to other metros. It is because of no land acquisition issues as most builders had directly purchased the land in the region from local farmers. This is one of the prime reasons why affordable housing projects in most metros don’t take off or face serious troubles.

In this front Raj Nagar has fared very well and the development authorities like the Ghaziabad Development Authority (GDA), Municipal Corporation of Ghaziabad (MCG) and developers and builders have played a major role in providing good quality of life to many residents in and around the area. Raj Nagar today has all the basic infrastructure amenities and good social infrastructure to support the growing population. Because of the affordability factor many individuals are considering the area as they have an option of builder floors and apartments in Raj Nagar.

It’s perfect for people who would like to have all the facilities of modern living coupled with serene peaceful and calm atmosphere away from the crowded city center. Accessibility of the area from its surrounding localities of Delhi is good, thereby making it a favourable investment option for many. For better connectivity within the area, the Ghaziabad Development Authority has approved a Metro Line between Arthala and Dilshad Nagar. The RRTS (Rapid Rail Transit System) proposed between Meerut and New Delhi will be crossing the locality at the nearby Mohan Nagar Station. Land acquisition is in process for this project and it is likely to have positive impact on the real estate sector if experts are to be believed.

A major highlight around the locality has been the green cover around it. The Ghaziabad Development Authority has declared a 500 acre parcel of land along the Hindon River as a green belt void of any construction to preserve its serene eco-system. This commendable feet by the authorities further adds charm to this developing locality overlooking a facade of beautiful green cover.

Talking about the locality Manoj Gaur, MD Gaursons Ltd, said to Times Property that “Raj Nagar Extension in Ghaziabad is today buzzing with a lot of construction activity. This developing residential area is near the bypass and one can travel to Delhi or other cities without crossing the crowded areas of Meerut or Ghaziabad. Another good thing about the area is that it is in the vicinity of posh localities of Ghaziabad.”

This further proves that this area can be an interesting investment choice.

This is a guest post by Sulabha Kulkarni

Housing Prices in India remained subdued during the quarter Jan-March 2014

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Property prices remained subdued across major Indian cities in the first quarter of 2014. As per the National Housing Bank data released for the quarter Jan-March 2014, barring Ahmedabad, Chennai, Surat, Lucknow, and Kolkata, most cities reported no appreciation or drop in housing prices.

Hyderabad: In first quarter of 2014 (Jan-March 2014), housing prices in Hyderabad remained static over the previous quarter. Localities such as Kapra, Uppal Kalan, L.B.Nagar registered significant appreciation, whereas prices in other localities remained static or moved downwards.

Faridabad: Housing prices in Faridabad remained static as well during the quarter Jan-March 2014. Areas such as NIT - 1 (NH); NIT - 2 (NH); NIT - 5 (NH); Sector - 62; Sector - 63; Sector - 64; Sector -65; Sector - 21; NIT-3; Sector -14 registered upward movement in prices, whereas areas such as Sector -15; Sector -16; Sector -17; Sector -18; Sector -31; Sector -34, Ashoka Enclave; Sector -37; Greenfield; Charmwood; Spring Field Colony; Adarsh Nagar moved downward. The neharpar region remained static as far as prices were concerned.

Patna: Housing prices in Patna fell in Jan-March 2014 quarter. Prices in localities such as Paschim Boring Road; Purvi Boring Kenal Road; RK Bhattacharya Road increased, whereas all other localities witnessed significant downward movement of prices.

Ahmedabad: Housing prices in Ahmedabad increased by 6% during the quarter Jan-March 2014. Price appreciation of 9.1% was seen in areas such as Bhadra, Dudheswar, Gaikwad Haveli, Girdhar Nagar, Wadigam. However, maximum price appreciation of almost 17% over the last quarter was witnessed in localities such as Abad Dairy; Bhaduat Nagar; Gordhan Vadi; Ramvadi; Vatva Gam; Vishal Nagar.

Chennai: Chennai has been an investor’s paradise offering attractive returns on property investments. Again in last quarter (Jan-March 2014), prices appreciated by about 6%. Localities such as Ayanavaram; Purasawalkam; Kolathur, Virugambakkam; Anna Nagar; Kilpauk; Nungambakkam, Ashok Nagar; Thyagaraya Nagar; Saligramam, Mylapore; Adyar; Velachery; Thriuvanmiyur appreciated handsomely.

Jaipur: Prices in Jaipur fell in Jan-March 2014 quarter. Maximum contraction was seen in Pratap Nagar; Sanganer; Jagatpura; Tonk Road, whereas, prices in Mansarovar Nagar grew substantially.

Lucknow: Housing prices in Lucknow grew marginally during the period Jan-March 2014. Appreciation in prices was registered at Lal Bahadur Shastri Nagar; Nishat Ganj; Gomti Nagar; Indira Nagar, Sarojni Nagar Pratham; Hind Nagar; Sharda Nagar; Om Nagar; Chitra Gupt Nagar. Prices in Haider Ganj Pratham; Saadat Ganj; Asharafabad; Bhavani Ganj; Husaianabad; Daulat Ganj moved downward.

Pune: Housing prices in Pune remained static over the entire quarter of Jan-March 2014. Barring Erandawana; Aundh; Pashar; Kothrud; Bopadi; Vadgoaon Bhudruk, housing prices in all other localities either remained static or fell down during this quarter.

Surat: Housing prices in Surat increased by about 7% in Jan-March 2014 quarter. Localities such as Rander; Adajan; Jahangipura; Palanpur, Katargam; Ved / Dabholi; Amroli; Chaprabhatha, Limbayat; Dindoli; Paravat, Piplod; Vesu; Rundh; Sultanabad reported significant price appreciation.

Kochi: The city did not register any upward or downward movement of housing prices during the first quarter (Jan-March) of 2014. Localities such as Palariwatam, Panampally Nagar; Thevara; Maradu appreciated, whereas Konam; Paluruthi Kacheripadi; Mundavelli; Chullikal depreciated.

Bhopal: Housing prices remained static in this city. While on one hand localities such as Airport Road, Bairagarh City, Punjabi Bagh, Ashoka Garden, Khajuri Kalan, Raisen Road, J K Road, Karod, Ayodhya Nagar, Berasia Road appreciated. On other hand, localities such as Shivaji Nagar, Arera Colony, Chunna Bhatti, Bagh Mugaliya, Katara Hills, Krishna Nagar, Saamra Kalan, Gulmohar, Trilanga, Shahpura, Hoshangabad Road depreciated.

Kolkata: Housing prices in Kolkata grew by 5% in first quarter of 2014. Prices in Ultadanga, Maniktala, Bhawanipur, Alipur, Santoshpur, EM Byepass, Kona Express Way, Shibpur, Santragachi, Nager Bazar, Lake Town, Barahnagar, Barrackpur, Madhyam Gram, Mahestala, Rajarhat grew, whereas Jodhpur Park, Dhakuria, Behala, Thakurpukur, Sorsona, Salt Lake City, Rajpur Sonarpur witnessed downward movement in housing prices.

Mumbai: Housing prices in Mumbai remained static during the 1st quarter of 2014. Prices in areas such as Lower Parel, Matunga East, Mahim West, Kurla East, Tungwa/ Chadivali, Chembur, Malad, Borivali/ Kandivali, Dahisar, Goregaon, Bhandup , Mulund, Vashi, Khar Garh Road, Kalyan, Badlapur appreciated. However, prices in Cuffe Parade, Malabar Hill, Virar, Nala Sopara came down significantly.

Bangalore: In Jan-March 2014, the city registered a marginal drop in housing prices over the previous quarter. Most localities in the city remained static during the quarter Jan-March 2014.

Delhi with NCR: Housing prices in Delhi NCR remained static for the Jan-March 2014 quarter. Vasant Vihar & Friends Colony, South Ext & Sagdarjung Enclave, Vasant Kunj, Punjabi Bagh & Shalimar Extension, Yamuna Vihar, Inderpuri & Rohini witnessed appreciation in prices. However, housing prices in localities such as Mayur Vihar, Dwarka, Pitampura, Noida, Greater Noida, Gurgaon & Ghaziabad, Govind Puri, Raghubir Nagar, Tri Nagar, Dilshad Garden, Karampura, Nirankari Colony, Pandav Nagar, Dakshinpuri, Hari Nagar, Jahangir Puri, Jhilmil Colony, Sangam Vihar, Mangol Puri, Ghazipur Dairy, Khyala(I-III), Sriniwas Puri, Sultan Puri came down.

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Will DDA Delhi Housing Scheme 2014 really help Economically Weaker Section of the society?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Delhi Development Authority (DDA) has come up with another housing scheme. It is going to be the largest ever such scheme by DDA offering about 27000 apartments by July end. DDA's scheme for 2014 will have 1,500 flats on sale for the middle income group and the lower income group, which will range between Rs 30 lakh and 80 lakh. There will be 1,375 HIG (high income group) flats on offer as well. These flats start from around Rs 1 crore. The 24000 EWS (economically weaker sections) flats are expected to be priced from Rs 12 lakh onwards.

Sources said the EWS houses have been constructed this time with a "new, substantially improved pre-fabricated technology". These houses will be spread across Narela, Dwarka, Rohini and Sultangarhi.

Wow, that’s a great initiative by DDA. Wow, what a great scheme for economically weaker section of the society? Now, some of them can afford to live in national capital at affordable prices. Is it really the case? Is it really a great scheme, when mere mention of the word “SCHEME” seems to suggest a scam in the making?

Let’s analyze the DDA 2010 scheme and see if it really helped the economically weaker section of society. In 2010 scheme, about 16118 flats were auctioned. And believe it or not, some 16 lacs applications were submitted. In other words, 1 out of 100 was allocated the flat through fair and transparent draw.

To make a formal application, a 100 Rupees form was required to be submitted in 2010 with a booking amount. The booking amount differed for different categories of apartments. The applicant applying for a flat under that scheme had to deposit the registration money of `1,50,000/- or `50,000/- (Janta/ORT only) as the case may be by a Single Banker’s Cheque/ Demand Draft of any bank drawn in favor of “DDA Housing” payable at Delhi/New Delhi.

Now, we do not know how many genuine people applied for the flats and got the allocations. However, we do know that lacs of people applied for the flats in the hope that if they were allocated the apartment through lucky draw, then, they will be able to make windfall profits by selling the same in secondary market at a premium.

We met one such property dealer in Delhi and he invited all his friends and relatives to submit the application forms. He made about 8 such applications and he paid for all the expenses. He had made a deal with his friends and relatives that if any one of them was allocated a flat, then they will sell the apartment in secondary market and share the profits at 50-50. Not bad.

So, are these schemes turning out be profit making entities for middle class, upper middle class, rich section of the society? Yes, the way they are targeted, it seems, these schemes benefit the rich more than the needy.

Have a look at who all made money in 2010

• DDA by issuing a lottery system and they got about 16 lacs applications of Rs. 100 each, i.e. Rupees 16 crores.

• To make the application, people had to deposit the registration money of `1,50,000/- or `50,000. And DDA made sure that banks grant this deposit money to these people at an interest. The interest portion turned out be around Rupees 5000 or more per applicant. We don’t have the number, but it seems, lacs of people used bank’s credit to make the application. Therefore, banks made money. And it could be in 100 of crores. 

• And finally, rich participated in huge numbers in that scheme and just by getting lucky in lucky draw; they also made money by selling the flat in secondary market at a premium.

So, we just analyzed, how good or bad the DDA 2010 scheme was. It really was a SCHEME.

Why can’t DDA accept applications from needy, at least for the so called “EWS (Economically weaker section) flats”? They can easily identify an applicant by way of his/her PAN account or Aadhar account and offer the EWS flats to someone who really belongs to the EWS category.

Another way to stop speculators from entering these so called "Pro Poor" scheme is by putting a transfer cap of say 5 years. In other words, those who are allocated the flat shall not be able to sell the same in secondary market for next 5 years. This happens in many EU countries. The idea is keep speculators away from such schemes.

Let’s wait and watch for the launch of scheme in July 2014 and see if EWS flats are really meant for economically weaker section of the society or the tried & tested lottery game is again being played out.

Cheers

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Are property shows to reach out to NRIs really helpful to Real Estate Developers?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

We are all accustomed to seeing property show/exhibition advertisement in daily newspapers. This is one of the many ways in which real estate developers reach out to real people, it is claimed. While builders in India use multitude of channels to reach out to resident Indians including print, TV, radio, internet, SMS, and property shows, how do they reach out to Global Indians? Do they really care about investment from Global Indians? A cursory glance at the website of various builders will suggest that “YES”, they do care, because most of them have this wonderful “NRI Corner” tab on their websites.

In 2013, upwards of 70 billion US dollar were remitted by Global Indians into India. This is highest among all the developed or developing countries. Wooohooo….where is this massive money going? Which sector? We covered this in our previous post about NRI remittances. Although, there is no segmented data of how much of this money is going into real estate, yet it seems a significant amount.

However, most of the Non Resident Indians worry about the upkeep, and management of their property.  Many NRIs would like to invest in realty sector in prominent Indian cities such as Gurgaon, Noida, Mumbai, Bangalore, etc. For example, Ashish Sharma has a budget of around 1 crore and wants to invest in Noida. But Ashish is worried what will happen to his apartment since he does not have anyone to take care of the property. This is where Property Management Company in Noida can assist Ashish in managing his property. This way, not only will he be able to invest in Noida real estate, but at the same time, he will be able to generate monthly rental income.

Now, the question to be asked is how Global Indians decide on investing with a particular developer given the fact that most of them would not even know the names of more than 5 developers? Maybe by talking to their resident friends or family members or maybe by researching on internet…but these are all Maybes, we do not have any metrics or analysis which points to a particular channel or combination of some channels.

Real estate developers, it seems, adopt following 3 channels to reach out to NRIs:

• Web

• Property Shows in foreign countries such as Dubai, UK, USA, etc.

• Sign up local brokerages

Let’s do the Pros and Cons of each channel:

Pros and Cons of Web:

By web, we mean, having a website, social media marketing, search engine marketing, search engine optimization, etc. 

Pros

• Helpful in creating awareness

Cons

• Non Segmented targeting
• Generic in nature

Pros and Cons of Participating in Property Shows in Individual Cities:

Property shows are organized by an event management company. The show is typically organized in a big hall wherein 15-20 developers can set up their 3 feet by 3 feet table and address the people who visit that hall. In addition, there will be a banking partner and a local media company. That’s it. Some property shows may showcase 40-50 developers. And the show usually lasts for 2 days (normally weekend). But these shows are so boring that why would someone waste his/her entire day unless there is some networking opportunity.

A property show management company who organizes such events in Dubai is again organizing the event in the month of June 2014. In last 7 years, the company has done about 18 such shows with 150000 visitors. Let’s do some calculations…..150000 visitors for 18 shows…that means about 8333 visitors per show….or in other words 4150 visitors a day for a 2 days show. Hmm…..

Are property developers happy with these numbers? How much money did they spend for this kind of show? We don’t know….anyone with this number in mind, please comment :)

Anyways, in this business of explaining property shows, we forgot about Pros and Cons…here it is!

Pros:

• Help in reaching out to limited people (not more than 8000 to 10000 for a 2 day property show). Hey, is it a Pro? Yea, something is better than nothing :)
• Limited brand exposure. Obviously, fewer the people who visit the show, fewer the chances of brand recollect.

Cons:

• City / Country specific
• High cost of participation for the developer (participation fee + air ticket + hotel + daily allowances to staff)
• A typical customer takes time to understand the market and trends. Therefore it is highly unlikely that he/she will buy the property on spot
• You may go to London to sell your Mumbai Project, but how many people of Mumbai origin will visit you?

Why the hell then developers participate is such shows? Lack of creativity or maintaining the status-quo seems to be the answer. Let’s see, if something better than this comes up in future.

Pros and Cons of Signing up Local Brokerages:

Local brokerages are the local property agents of real estate developers in select countries. For example, ABC developer may take services of property agents in Singapore, Malaysia to sell his Chennai project.

Pros:

• A local property agent has sound relationship with his/her clientele; therefore he/she is in much better position to realize the property transaction

Cons:

• Limited channel partners internationally
• Challenges of motivating them to sell your property

All in all, it is a complicated matter for real estate developers. And we are sure; they will sit in their board rooms and will come up with new ideas, strategies to reach out to NRI, PIO, and OCI audience. 

Meanwhile, don’t forget to tell us how much it costs to participate in an overseas property show with limited footfall and limited brand awareness :)

Cheers

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