Sustainable townships & Land – A misunderstood relationship

“Adversity brings out necessities”, said a management guru, at a seminar that I attended a few years back. However, my journey is the real estate sector proved otherwise. Let me explain.

 

During the adverse period for the industry in late 2008 till 2012, everyone connected with the industry experimented with words like “Affordable”, EWS, Mass housing, Green, efficient, productivity etc. These were Uber sexy words to utter while explaining philosophy. Sadly, the words remained words, and didn’t translate much into results, with developers going back to what they know best, with the times getting better.

“Sustainable” is one such concept, which is approached with trepidation, for policy watchers like me, lest this too falls prey to the vagaries of investment climate, developer gullibility and policy shortsightedness.

Being part of the land trade, I feel compelled to bring out the relationship between future development & land. Development in India, and land have an intricate delicate relationship, and vested interests till date have played the ignorance of the land owners, and divested the country of tangibly measurable sustainable projects.

Land, being a state subject is prone to the whims of the policy makers, the ignorance of the regulators and utter callousness of the developer, when we peruse the history of sustainable projects, in India. Land is finite; hence it needs to be leveraged better. If we look around, in all fairness to the developers, there are policy bottlenecks like Low FAR, low incentives to develop sustainable project and lower product differentiation and appreciation by the occupier.

How many of the readers to this column are prepared to pay say 10% more to be part of a Green self sustaining water & carbon neurtal office space, or residential dwelling unit?

If the percentage is below 50, that proves my argument on sexy words not translating into actionable.Someone told me once “anything sustainable is an attitude, and attitudes have to be sold door to door”. How true!!! To propel the developers to indulge in more sustainable projects, one can use both the carrot & the stick. Sadly, neither are used currently in the right proportion. The misconception is that sustainable projects are the buildings that are erected in either a project, township, SEZ or building.

No sir, my argument is that “It is not”.

For every project, the first requirement is ‘Land which is purchased on the right valuation”. When the developers, marketers & sellers calculate their returns, most often the land is discounted for it’s yield, and only the physical saleable structure is taken into account. But, anything & everything to do with sustainability has to be created on the no saleable bit, “THE LAND”.

Ok, let me explain, whether rain water harvesting, be in composting the garbage, beds of other neutralizers, aesthetic gardens & trees for fresh air or any independent initiative needs land, and a lot of land which does not house a saleable structure. Where would that come from?

If land is bought at a right valuation (read cheap) and the developer is sufficiently incentivized, he would develop, irrespective of the end occupiers apathy. Those developers who only seek to calculate the sales value of the finished structure, and ignores the land around as the non-saleable component, would never evolve the mindset to create sustainable project.

Come to think of it, in a project of 100 acres, only about 45% of it is saleable. A good 55% of it can be used, and the government can reward the developer on this portion, which can benefit the public at large, and not be seen as a commercial activity. On their part, the developer can seek to load the cost of the 55% onto the saleable component, which probably would yield them better long-term rewards.

Alas, short sightedness is always a stumbling block.

Another misconception is that the land in large chunks are required for sustainable projects; partially true, but the keyword here is “Right valuation”. No farmer to my knowledge ever dreams of making 5-10 crores per acre for his land, for he has only made 16-20,000 per acre yield, while tilling it. It is the investor-developer-buyer greed, which drives the price up to unviable levels for sustainable projects.

Make no mistake, Yes, it requires a different mindset, but also needs cost inputs than the vanilla developments that we see all around us. Any business entity would only be willing to invest if it makes economic sense, OR, is forced by regulation to follow the norms. And to achieve all this, you need land at the right valuation, and be able to take a longer-term perspective of the developments.

Hence, all that’s “Proper & Sexy” might be good catalysts for drawing room discussions, but might require coercion to adopt as a mindset. I rest my argument.

 

 

 

 

 

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