Real Estate Regulator Will Bring Oligopoly In The Sector

With the Union Cabinet approving the Real Estate (Regulation and Development) Bill, the popular view is that it will help property buyers benefit and make the system more transparent. The real purpose of the bill is to give a reliability of the delivery of the project once it is launched. While the bill has its good intentions, precedents show us how such regulations usually eliminate the small builders completely.

Highlights of the bill:

1.     All residential projects having units that are more than 4000 sq mts will fall in the ambit of this regulation.

2.     All projects to be launched only after all the permissions have been received for the construction of the project.

3.     About 70% of all the money collected for the project has to be used only for this project.

4.     Projects to be sold on carpet area only.

5.     Each state will have a tribunal for redressal of complaints.

In the past India has seen regulators like IRDA, SEBI, TRAI, CCI, RBI, DGCA, ICAI. What each of the regulator has undoubtedly brought in is the required “buyer benefit”. However, a side effect of such a regulator’s impact on the market is consolidation. For example, the proposed real estate regulator in the new bill makes it compulsory for all new projects which are more than the size of 4,000 square meters to follow a few rules. Now such a regulation would actually harm the big projects and builders would try to divide projects and do smaller projects only. However, a few factors like cost of construction, cost of marketing and the cost of providing common facilities push builders to do larger projects only. The customer eventually thinks that he should invest his hard earned money in a project which is regulated rather than an ‘unscrupulous’ builders’ unviable project. This breaks the back of small builders, who survive on a single scheme at a time.

These days in a metro city there is already a lot of consolidation with a few names like Lodha, DLF, Hiranandani, etc. dominating the real estate sales market. Lodha claims sale of Rs. 10,000 crores in the last fiscal which is more than DLF’s sale of Rs. 9,000 crores in the same period. In a Tier 2 city there are lot of local builders operating in selected areas of the city. Usually the local builder association has about 2,000 small and medium builders which are now dormant – due to slow market conditions. The SME segment has already got the burden of lack of reliable brand, inability of having fixed salaried staff and inability to invest in modern techniques of construction. When such a builder wants to scale up to large sized projects, he will need to comply with the regulator’s provisions which will deter him further.

We have seen in stock market that eventually all the small and medium sized IPO and brokers are eliminated from the market. It is said that SEBI regulations have closed more brokers than the slow market. So we have a handful of stock broking houses like Motilal Oswal, Angel Broking, Share Khan, etc. who own practically the lion’s share of the market. It is said that unless a broking house has 10,000 customers there is no viability to run the operation. Oligopoly is the future of real estate sector, be it a builder or a broker.

The proposed bill has a concept called “registered brokers”. Hence brokers are also going to fall in to the ambit of regulation, which until now has been totally out of regulation. Such regulations in other countries have streamlined the entire industry and have brought a lot of transparency. Brokers slowly adapt to the regulated world and start building their own brand. This indirectly regulates the secondary market also.

Even the CREDAI (Confederation of Real Estate Developers Associations of India) has ‘strong reservations’ according to the Credai president C Shekhar Reddy. He has expressed his concerns about the License Raj re-entering the real estate world and unnecessary victimisation of members. It is important that the Bill maintains equilibrium between the developers and end users. Implementation of this Bill as it is will cause substantial increase in cost to buyers. In the long run the bill has the potential to actually shatter the government’s initiative of ‘housing for all’ at affordable rates.

Right now the cabinet has passed the bill and it is scheduled to be tabled in both the houses in the monsoon session. The bill most probably will get passed uneventfully as officially only the state of Chhattisgarh has opposed it. So the regulator will actually cause ‘irregulations’ as it is not conducive to the small time brokers and is quite lopsided in approach. Oligopoly seems to be imminent. 

WHERE ARE THE TOP SCHOOLS OF YESTERYEARS?

Escape the dinosaur syndrome- change with the times!

Let me share a startling fact with you. The top 10 US exchange companies that were roaring and unputdownable in 1900s are no longer around, except one. Even the ones that were in top form just a few decades back are mere skeletons of their old form. You will certainly be amazed that of the top 10 US companies of 2013, based on market capitalization, none of the giants of yonder years exist, except General Electric. No, this is not a blog canvassing the GE Company. I am trying to draw a parallel between the failure of top companies and top schools. Most top schools in Ahmedabad in 1980 are no longer top schools. While one would want a proven schooling system for their child, but last 50 years’ experience shows that people have to put in new schools! The reasons for failure are quite similar and there is plenty to learn from those who managed to sustain their lofty heights.

                                              GROWTH VALUES AT GE

Source: Harvard Business Review

Reasons why top schools fail to sustain themselves?

  1.       Not adaptable enough: Let’s leave the US companies aside and strike closer to home, in our own city, Ahmedabad. A few decades back, the top schools of Ahmedabad were CN, Diwan Ballubhai , Udgam, A G High School,St. Xaviers, Mount Carmel, GLS and Shreyas to name a few. Today when we talk about top schools, how many of these erstwhile good schools feature on the list? The main reason why these schools could not sustain over the years is that they did not adapt themselves to the changing needs of their market segment. Happily one name remains evergreen. Can you guess which one? The only reason is ‘adaptability’.

  2.       Burgeoning classrooms: Earlier most schools had one section with limited students with a teacher student ratio of 1:25. With the ever increasing demand of Indian population, schools started growing but the teacher student ratio suffered as the infrastructure did not adjust to the additional needs.

  3.       Medium of education: Gujarati to English is a leap indeed but this leap has been necessitated by hard core globalization. So change we must keeping with the times. But many of the old giants did not feel this necessity or were very rigid about changing and the school standards suffer as a result.

  4.       Board of education: If a board like CBSE is regarded to be the best in terms of the changing times, then what better than to switch over and reap the benefits. After all a school which has the interest of the students at heart should make changes wherever possible. But again many of the older schools feel happy with their lot and are averse to change.

  5.       Location of school: Most old schools have grown and so has the city around them. The result is restricted spaces or the need to move to a bigger campus.

  6.       Facilities of school: With the growing needs and changing times, it is no longer ok to confine to the old method of ‘chalk and talk’. Resorting to the blackboard as the only teaching aid and restricting learning to the prescribed book no longer suits the wide scale globalisation which necessitates that a teacher brings the world to the classroom. Along with academics extra-curricular activities play a major role too but are sidelined in many schools.

  7.       Technology in education: Today technology plays a very important role in education and not only as a part of Computer Studies. But how many teachers have been retrained and how many schools actually spend on technology in the real sense?

The changing scenario and accompanying hitches

There has been rampant change in all fields and the world is no longer what it used to be a few decades back. Companies have either adapted by making major changes or faded out. Moving ahead with the times is the mantra but is easier said than done at times. Some of the obstacles that schools face in the pursuit to change are-

·         The outcome of schooling from a parent’s perspective has changed. Parents are overambitious with child being the centre of all planning and the outcome being more important than the process. In a bid to satisfy their own ambitions and outweigh their associates, parents are no longer satisfied with what the best Indian colleges have to offer in terms of higher education. They now yearn for international education and the number of students who flock westwards and sometimes further east, stands testimony to this.

·         Schools are forced to raise the fees and this may be higher in proportion to the facilities offered or additional facilities are included to justify the whopping fees that the schools charge. The main reason for this is the increasing income of parents. Schools are of the view that if the fees do not match the income of parents then parents have a preconceived notion about the standard of the school. Higher fees indicate better standards for most schools, whether true or not.

·         Almost everything has transformed drastically except Government regulations. The cap on fees and other factors that the Government has made mandatory for schools makes it difficult for schools to adapt even if they want to. Newer schools are better off in this aspect than the existing ones.

So what is to be done to remain at the top?

The necessary edge that schools have over companies is they are like old wine. They get better as they mature due to proven practices, intellectual research and the absence of experimentation. Parents still prefer the teachers who have become stalwarts with their experience and tenure. But it is also a fact that it is difficult to retain the old and adapt to the new at the same time.

So what is actually required is making change in doses or increments. Measure by measure is the method to be used to avoid becoming a dinosaur in the field. Extinction is imminent if a school stays rigid and unbending.

The Udgam Example

Udgam School for Children has been around for the last 48 years! There are no two views about the good name of Udgam and this has been so for the past four decades. This is one name that has remained on the Top 10 list while others have either fizzled out or closed down or are mere remnants of what they used to be. So, what makes Udgam tick and stand the test of time? The answer is one word- ADAPT!

Over the period of almost half a century, Udgam School has grown from a handful of students in one small building to almost 3000 students in two branches in sprawling premises. When the need arose and students increased,   Udgam grew and changed location to accommodate the increasing amenities. Udgam was performing outstandingly as a Gujarat Board affiliated school but changed over to CBSE as a means to dissolve boundaries in education. Udgam School is the only reasonably good school in Ahmedabad which has changed its board and its location its lifetime. This makes the school the most Adaptable school also. The good name in academics has remained unchanged and year after year Udgam toppers have done brilliantly, if you see the recent results of CBSE of 10^th and 12^th.

Udgam implemented technology like no other. The environment friendly initiatives are ahead of the times.  One finds a seamless confluence of tradition and change, academics and activities, values amidst street smartness, experienced stalwarts and innovative freshers in a school that is of the children, for the children and by the children.

Truly justifying its name!