September 10, 2012 by Parthajeet
I head to IIM Amhedabad this week to pow wow with industry luminaries, regulators, academicians and others about our holistic solution for India’s housing shortage. Named ICH (Ideal Choice Homes), the idea has now been recognized as one of India’s top innovations under the ET Power of Ideas program, promoted by the Department of Science & Technology, IIM-A and the Economic Times. Ours is a mission to provide housing to millions (current estimate 26 million units shortage) of Indians who do not have a ‘liveable’ dwelling. This two and half year old mission has seen support in various forums from the likes of Royal Institution of Chartered Surveyors, CREDAI, National Housing Bank, Tata Housing and others.
The 26 million shortage is underserved and untapped by private developers. Private developers are more than happy selling overpriced homes in India’s large cities. Our proposed solution has information technology (IT) at its core, integrating all the various variables and bringing in efficiencies into the system, besides developing a ‘manufacturing’ outlook in the building industry. We have spoken and written about how IT can bring in a sea-change in the industry; eliminate inefficiencies, unprofessionalism and corruption.
This week I saw a new perspective to the use of IT in the industry and how developers arm-twist customers, in the name of IT.
Two weeks back, I had booked a studio apartment, at an ‘attractive’ pre-launch price with one of India’s leading developers. They have not begun construction yet. I was quite impressed to see their system driven processes, and their adherence to meticulous documentation. It was impeccable and almost unheard of in the industry. The application forms have to be filled in properly; then you get a verification call; your application is approved only upon this verification call being found OK, otherwise rejected. Their payment schedule seems ERP driven and e-invoices are sent out, with various payment options. You are even given a dedicated email id where all the details regarding the payments can be seen. Very high tech, very chic for the building industry…it is almost like buying a plane ticket. I am sure that the developer has managed to bring in far more efficiencies into the system with the infusion of IT than without it. So hats off to them for this.
What is interesting though and rather shocking is how such large developers manage to ‘beat the system’ and still resort to some practices which cannot be labeled as good corporate governance. Corporate Governance and Regulations is what we need to infuse into the system. Let me elaborate:
The entire transaction is to be made in cheque (white) payments. That works well for people like me. After the ‘sales pitch’ was done and I was convinced, I was told that I will have to pay an additional Rs. 2 lacs in cash towards a car park. Fine I said. Then they said that I will have to make this payment now. Not fine I said. Why should I pay for a car park to be delivered to me after 3 years now? Why cash…that of course is the biggest question. And is one allowed to ‘sell’ open spaces at all??? Then they raised me an e-invoice. This invoice was for the 1st installment; I promptly made the payment through an electronic transfer, well within the due date. After I made the payment, they informed me that I will have to make the cash payment of Rs. 2 lacs at the same time, as without that the ‘system’ will reject my first installment. I was flabbergasted! How does a ‘system’ recognize whether I have paid a separate sum in cash or not, for which there is no invoice and no record???
As I was going off to the IIM-Ahmedabad camp, I requested them that they allow me to come back and pay them the cash if the system was so adamant. They refused. I then said that I will then pay them even the second installment (in cheque) additionally now (even though the due date was 1 month away) which was much higher than the Rs. 2 lacs car park payment. I offered that I will make them the cash payment upon my return from Ahmedabad. They refused. Soon afterwards, I received an SMS showing that they have rejected my 1st installment payment and had reversed the payment back to my account!
They informed me that 18% interest will be levied for any delayed payments!!!
This experience brings to my mind several questions:
- Can open areas be sold?
- Cash payments linked to an ERP system with no record of the cash…how is that possible?
- Pay for a car park now, which will be delivered to you after at least 3 years? What kind of logic is that?
- 18% interest for delayed payments? On what basis is this framed? Is there a regulator who lays down such norms? None to my knowledge.
- If a developer can charge 18% interest for delayed payments, can a customer charge 18% interest for delayed handover of projects?
Private developers work in a largely regulation free environment, allowing them to explore loopholes and keep corporate governance at bay. If the above example is the state of affairs with a leading developer which has adopted information technology, you can well imagine what the scenario will be for the markets where the 26 million units shortage exists. This is also a pointer towards some of the reasons why the demand-supply gap in housing in India continues to grow over the years.
A holistic solution is what we have envisaged and what takes us to IIM Ahmedabad this week. We are working with regulators and industry to bring in necessary changes in regulations. A manufacturing outlook, with standardized houses manufactured offsite, will not only bring in efficiencies….but will ensure that you pay for a completed house, and get away from paying now and getting delivery after 3-5 years, of a car park. If I can buy the car 3 years down the line, why should I buy the car park now? The integrated supply chain approach of the automobile industry is our inspiration and we believe that in late 2013, one will be able to buy a house (ICH) in exactly the same manner as buying a car.