7/29/2019 Govt Positively Discourages Affordable Housing - ToI - Jerry Rao of Mphasis

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http://articles.timesofindia.indiatimes.com/2012-07-20/india-business/32763566_1_affordable-

homes-jerry-rao-subsidies

Govt positively discourages affordable housing: Jerry RaoAnshul Dhamija, TNN Jul 20, 2012, 01.11AM IST

http://www.vbhc.com/know-us/board-of-directors

Tags:

real estate| ratan tata| MphasiS| Jerry Rao| Govt| affordable housing|

A promise is a promise" is what Ratan Tata had said when he gave India the Nano in 2008. Four yearsdown, Jaithirth (Jerry) Rao expresses a similar sentiment. Rao, who had previously founded IT

companyMphasisthat 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 ofValue 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 adecent price point in a profitable way. I'm very happy about that. But I'm unhappy that there doesn'

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 approva

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 thatsame 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 wil

come down.

Would government subsidies help grow this market?

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7/29/2019 Govt Positively Discourages Affordable Housing - ToI - Jerry Rao of Mphasis

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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 approva

processes are much faster. The general mindset that they work with is "affordable housing i

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 thenget 60% in real estate?Ads by Google

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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 opartial 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 wil

come. And nobody is thinking of selling out in five years and moving to a bigger place. They think tha

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 al

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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http://india.ashoka.org/affordable-housing-all-%E2%80%94-our-lifetime

Affordable Housing for All In Our Lifetime

Submitted by: John Converse Townsend on 12/12/11

In the coming decade, the affordable housing market could grow to more than a trillion U.S. dollars ifamilies simply double the current level of annual consumption of housing products and services. Thisis a conservative estimate based on the current gap between need and supply, and the increasingmigrations to cities' urban slums.

In the process of unleashing this significant market opportunity, hundreds of millions of people wouldhave access to dignified homes, healthier places to raise their families, and more valuable assets thatthey could leverage to transform and improve their lives.

Unfortunately, we will not accomplish this unless we stop thinking one business deal, one companyone client at a time. We need to build a new affordable housing ecosystem, one with the capacity to

continue to ramp up the processes and systemic changes needed for the housing industry to offerappropriate products for low-income populations, for enough financing to become available, and forthe right standards and quality to be in place and incentivized to enable a billion of the world'spopulation to participate in the housing market as full economic citizens.

During the last five years, the global Ashoka community and its partners have been building the basisfor this transformation in the affordable housing sector. The journey started with a handful of privatecompanies, financial institutions, and citizen sector organizations in India, Brazil, and Colombia. Werecognized that if they collaborated, they could accelerate the emergence of a vibrant and sustainablemarket for new homes and incremental housing.

In order to fix broken affordable housing value chains, each player needed to move from a mindsetwhere they were competing for a limited "wallet share," to one in which multiple playerseach withdifferent assets to make the wallet actually expand in sizecame together in significant and increasingnumbers to:

overcome major obstacles (such as land rights or insufficient capital for mortgages) co-create innovative solutions (such as bundling financial literacy and self-building technica

assistance with new housing microcredit loans), and enable millions of new clients to have the capacity to act in the formal market as empowered

consumers of affordable housing products and services.

Many players in the formal housing industry know that clients need the combination of all theseservices to satisfy their housing needs. But these servicesseparately or combineddo not exist fomost BOP clients, even for the large proportion of them that have the savings and regular, iundocumented, incomes to be able to repay a housing loan. For the most part, the housing industryhas failed to serve these clientseither because their needs are invisible to them or becausecompanies have not figured out how to successfully market housing products to BoP populations.

Meanwhile, governments, multi- and bi-lateral development organizations, and private philanthropycontinue their work, apart from business and market forces, even knowing that with the relativelysmall amounts of money they have to spend on affordable housing, it would take more than a hundredyears to address the existing housing deficit at their current pace.

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7/29/2019 Govt Positively Discourages Affordable Housing - ToI - Jerry Rao of Mphasis

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Citizen sector organizations play the role of advocates for housing rights and enable communities toorganize around their common and individual needs. But their resources are also very limited, andrarely do they reach a scale that is consistent with the extent of housing needs.

While all these different stakeholders continue to fail to solve the problem in significant or strategiways, low-income families continue to self-build and self-finance often sub-standard homes, at asignificant cost and physical risk to themselves and their neighbors. Housing value chains are indeedbroken.

What Breaks This Cycle of Failure?

Most of the basic technology and know-how to serve these clients already exists. The challenge is tomobilize all these stakeholders around a vision of "collaborative entrepreneurship" within theindustry and across sectors. Through its Housing for All initiative, Ashoka accomplishes this bybuilding a common vision for the development of the affordable housing industry: one centered on anew interpretation of client needs and resources, and their inclusion in various value-added stepsalong the affordable housing value chain.

Operationalizing this vision is about the building a "hybrid value chain" where corporations andcitizen sector organizations (and local governments) collaborate to develop the market and build an

ecosystem where a new type of affordable housing industry is possible and profitable.

Ashoka's Housing for All work is anchored on trust-based relationships that BoP populations havwith citizen sector organizationsthat have a long-term and extensive presence in the communitybethey an NGO working for years with families on maternal health, or on financial educationmicrocredit programs, or small business development. Thus, they can play useful roles to help BoPpotential consumers increase their tangible assets and savings, and validate their informal wages asregular and sufficient to qualify for housing credit or loansan often long, costly, and unsuccessfuprocess when undertaken by banks.

Written by Valeria Budinich, Ashoka thought leader and head of FEC's global Housing for Al

initiative in Colombia, Brazil and India. This story has been republished with permissionfromNextBillion.

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