Thursday, May 15, 2008

Don't mistake infrastructure for glitzy malls

Well I am not surprised at all after reading this. In fact, I’ve already said what I had to. Here and here.

“PE funds and analysts have become far more cautious in evaluating real estate investments in India. One of the analysts said that some of the funds are tightening norms for valuations after the slowdown and at least 30 per cent of the deals are taking a much longer time to go through because of valuation issues.”

All things that go up will have to come down. That is law of gravity. Imagine real estate prices going up without adequate supporting infrastructure. Say, proportionate expansion of road area or power and water supply? Ask Chennai residents. They've proved that humans don’t need natural drinking water to survive. Their life can be threatened only if the bottled water supply stops. One lash of rain and the city is flooded and the next few days are spent clearing the slush and choked drains. Soon many other cities will follow suit.

What is the point in putting up millions of square feet of glitzy malls and complexes if there are no decent roads leading to them? This is the bane of our city dwellers. Bombay was the pioneer that led this brand of mindless development and other cities haven’t learned from its travails. Bangalore, Chennai, Kolkata, Hyderabad, Cochin are all developing fast on the roadsides. But road area available remains just the same. Naturally less people would like to visit such places, much less choose to occupy. Fewer will invest. So how do you expect the prices to keep going up?

Town planners will have to work overtime. May be, one can try out PPP route to salvation. Infrastructure companies should be entrusted with the task of developing large townships and no individual developer should be allowed to develop in fractions. The system of build a block first, then dig the road to lay water and sewer pipes and dig again to lay power/data cable should stop. Major slices of Municipal budgets getting wasted on humungous pensions for past employees should stop. Spend it on better planning and efficient execution. That, if anything, would stabilize property prices - not liquidity, not a booming stock market or a surge in demand fueled by higher disposable income with people, because all this can dry up. What is constant is easier access, navigable road network and a peaceful enjoyment of the premises with enough water to drink and power to run your essential gadgets - in the kitchen, at least.
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1 comment:

santosh said...

Though these developments are taken as positive for the property end-user, there are many who apprehend that foreign money would push property prices up in sky. Investment groups eye Indian markets for its wealth building potential and they are not concerned about the end-user, they say. Property development costs may come down for the developer but it is no guarantee that they will pass on the benefit to its customer, given the pressure of generating returns for its investing partner.

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