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Realty check: skills shortage may put brakes on growth

Realty check: skills shortage may put brakes on growth
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First Published: Tue, Jan 01 2008. 09 15 AM IST

Labour pangs: Difficulty in ensuring a steady availibility of labourers, with migrant construction workers returning home for festivals or sometimes not turning up after a good harvest, could slacken
Labour pangs: Difficulty in ensuring a steady availibility of labourers, with migrant construction workers returning home for festivals or sometimes not turning up after a good harvest, could slacken
Updated: Tue, Jan 01 2008. 09 15 AM IST
New Delhi: India’s booming real estate sector that has seen record growth in the last three years may be forced to slow down as it battles an acute shortage of project managers, architects, skilled construction labour and even building materials, say many consultants and developers.
In part, that’s a combination of ambitious plans by some builders with little previous experience in building mega projects of the type announced, and regulatory hurdles in project approvals, making several mega projects slip behind schedules.
The time frame for projects that many developers are talking about is aggressive, says Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj. “I am sure that while developers will go ahead and construct, there will be inevitable time delays as the experience to develop large tracts of land is not there,” he adds.
Short supply: Another constraint the industry faces is a shortage of raw materials such as bricks, cement and sand. Demand for cement is projected at 257mt by 2012; India produces only 165mt annually. (Photo: Rajeev Dabral/ Mint)
The Indian real estate industry, which is building a record number of projects at a scale and size never seen before, just does not have enough skilled people to ensure the projects are completed on time. Also, many of the developers have not really focused their organizations and fine-tuned them to handle large projects, Puri claims.
In the last couple of years, leading Indian and overseas developers investing in the Indian real estate market have announced ambitious projects involving the development of very large tracts of land going up to 9,000 acres and worth investments of Rs40,000-50,000 crore.
But, this is not just by the well-known—and more prepared—companies. The industry also has relative newcomers with large projects.
For instance, QVC Realty Pvt. Ltd, a venture-capital funded company formed this year, has said it plans to develop around 6-10m sq. ft of residential and commercial property over the next five years in markets such as Mumbai, New Delhi, Bangalore, Hyderabad, Chennai and Pune. Another developer, Rakindo Developers Ltd, a recently formed joint venture between UAE-based Rakeen Developers Ltd and Trimex Group of Chennai, plans to invest $5 billion (Rs19,700 crore) over the next five years in developing more than 50m sq. ft of land.
Both QVC Realty and Trimex Group, which is a Chennai-based mineral conglomerate, have no prior experience in real estate. Some experts believe that while experienced developers will have some advantage, the new developers could face delays in delivery of projects.
“Project management is crucial in real estate,” says Aniruddha Joshi, executive vice-president of Hirco Plc., the real estate investment vehicle of Mumbai-based developer Hiranandani Developers Pvt. Ltd. “Managing the whole process of development will be a steep learning curve for new players.”
Executives of QVC Realty say they don’t believe new players are at a disadvantage. Companies which have the ability to execute will eventually succeed, says Prakash Gurbaxani, founder and chief executive officer of QVC Realty. “The ability to execute depends on the ability to create a management team, which can, in turn, execute,” he said. “You could be an old company and not be able to attract people, but a new company might be able to attract talent. So, companies that can adapt to changing business environments will succeed in the long term.”
If anything, the absence of basic infrastructure facilities, such as power and water supply, could be the reason for any delay in the launch of some projects, Gurbaxani said. “We are still in the process of obtaining approvals for our township projects in Gurgaon. But, if the infrastructure facilities are still not in place by the time we launch the projects and start developing it, it will affect the projects.”
Rakindo Developers says some projects do get delayed because of regulatory issues and shortage of contractors but notes that, as a “master developer,” Rakindo will acquire the land, conceptualise and plan the projects, but the bulk of the project development work will be outsourced to third-party developers.
“We will do 20-30% of the development and build the basic infrastructure,” said Prasad Koneru, managing director of Rakindo Developers. “We will lay down certain conditions for the developers that they will have to deliver the projects within a certain time frame and there might be a penalty clause also in case work is delayed.”
But, there is a dearth of people with experience in real estate, construction and project management, says Anshuman Magazine, managing director, South Asia region, CB Richard Ellis, a real estate consultant. This will make it difficult for even experienced developers to ramp up quickly.
CB Richard Ellis says it is trying to meet this gap by offering project management services as a third-party service provider to developers. The consultant has 375 people in its project management services business. The consultant has so far done 12-14m sq. ft of project management in India. But, even CB Richard Ellis is facing a problem in expanding its project management business. “Our constraint is people right now,” Magazine says.
Developers say the real estate industry is going through a phase that is similar to that experienced by the business process outsourcing (BPO) industry some years back. “There was a time when anyone who had surplus capital started a business process outsourcing business as it was an easy way to make profits,” Joshi says. But, later, there was a consolidation phase in the industry. “I would not be surprised if the real estate industry goes through the same,” he says.
A few builders, especially those that are new to the business, also do not have discipline in cash flow management. “They tend to stretch themselves. Delays in delivery caused by their own cash flow problems are rarely highlighted by these builders,” notes Ravi Rao, president of Prestige Group, a Bangalore-based developer.
Builders are also finding it difficult to ensure a steady availability of construction workers. There is a shortage of both engineers and construction labourers. Though exact estimates are not available on the shortage of construction labour in the country given the unorganized nature of the sector, developers and real estate consultants agree that this could slacken the pace of project completion.
“It is quite difficult to find and retain a variety of skilled labour in the construction business. Masons, bar benders, carpenters, lift installation personnel, for example,” says Prestige’s Rao. The firm outsources its construction work to third-party contractors, the way most developers do. These third-party contractors, in turn, employ construction workers, either directly or through sub-contractors.
A large chunk of the labour that contractors employ are migrant construction workers from states such as Orissa, Uttar Pradesh, West Bengal, Bihar and north Karnataka. Carpenters and marble layers are sourced from Rajasthan and Uttar Pradesh.
Labour pangs: Difficulty in ensuring a steady availibility of labourers, with migrant construction workers returning home for festivals or sometimes not turning up after a good harvest, could slacken the pace of project completion. (Photo: Harikrishna Katragadda/Mint)
Because migrant workers tend to return to their homes during festival periods and harvest seasons, Rao says: “A good harvest could mean that some of them return late or do not return at all.” Projects sometimes are delayed because of this, too. Once people disband, it takes time to reband them. This happens often during different parts of the year, Rao said.
DLF Ltd, India’s largest listed real estate developer, is tackling this problem by bringing in workers from West Asia. “There is a large Indian workforce in the Middle-East, including those in projects being executed by Laing O’Rourke,” says J.K Chandra, director of DLF-Laing O’Rourke. “Some workers may be wanting to relocate back to India and we could look at the possibility of absorbing them in our projects here.” DLF and UK’s infrastructure and construction group Laing O’Rourke have a joint venture for construction projects.
Construction raw material is also in short supply. There is a shortage of bricks, cement, sand and even steel, complains V.K. Sharma, vice-president, real estate development, Era Landmarks (India) Ltd, the real estate arm of Era Group. India produces 165 million tonnes (mt) of cement annually. But, the working group on the cement industry for the 11th Plan has projected cement demand of 257mt by 2011-12.
However, the Cement Manufacturers’ Association of India, the apex body of cement manufacturers in the country, does not accept that there is a shortage in supply of cement. “There is no shortage. On the contrary, by the end of November this year, we found that the cement inventories are increasing because of a demand crunch,” insists S.K. Dalmia, acting secretary of Cement Manufacturers’ Association. “In the winter season, normally, we see a demand crunch as construction activity slows down.”
Materials, such as cement and steel, can at least be imported if there is a shortage, Era’s Sharma says. But, what is likely to be in short supply are also more basic materials, such as sand and stone aggregate. “As supply of these materials is in the unorganised sectors, it is difficult to estimate the shortage,” he says.
Other equipment, such as elevators and escalators, are also often imported, which takes time. “India has to compete with other countries in securing these raw materials,” says Puri of Jones Lang. “All this adds to the delay in projects.”
In the case of overseas developers, especially from West Asia, while they do have certain advantages in terms of superior technical know-how, operating in India isn’t easy as the legal and regulatory environment in India is different from West Asia.
For instance, obtaining environmental clearances in India for projects (with built areas of more than 20,000 sq. m) could sometimes take as much as a year. Rakindo Developers, for instance, plans to build a marina near Chennai and a housing project in Kumarokom in Kerala. But, the company is yet to get environmental clearance for the projects, though it has been trying for a year.
Obtaining the large number of pre-and post-construction approvals from a variety of agencies is a complex and time consuming procedure. Developers need to have experience in handling bureaucracy while at the same time complying with statutory requirements, says Rao of Prestige.
The timely delivery of projects could soon become the differentiating factor for the real estate industry, say industry observers. Customers will start looking at the track record of developers before investing in a property. The market is going to evolve into a buyers market, eventually, says Magazine.
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First Published: Tue, Jan 01 2008. 09 15 AM IST