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West Bengal turns to private builders to meet housing needs

West Bengal turns to private builders to meet housing needs

Last year, the Kolkata Metropolitan Development Authority (KMDA) prepared a report dubbed Vision 2025 in which it estimated that the eastern metropolis will have to add 60,000 homes every year if it is to meet the projected housing demand by 2025.

The West Bengal government did what it has been doing for the last 14 years—turn to private players to help build the city and equitably distribute low-, middle- and high-income housing. In a state crippled by draconian land ownership laws, it has become the only way to develop large parcels of land for housing.

“The public-private partnerships helped the government build on its social housing stock and gave us a chance to do larger projects," says Harshvardhan Neotia, managing director, Bengal Ambuja Housing Development Ltd, which was the first joint venture (JV) in the state and has about nine such residential and at least two commercial projects.

West Bengal is still governed by the Urban Land Ceiling Act, which restricts the amount of land private players can hold. This in turn has led to diffused small local developers who have been kept out of building large developments. With government participation, however, those joining hands with the state have been able to scale up their real estate projects. “These projects helped the private builders get past the stringent Urban Land Ceiling Act and also facilitated smoother conversion of agricultural land for real estate use," says Abhijit Das, regional director of the real estate consultancy agency Jones Lang LaSalle Meghraj.

“It allowed the government to leverage the land available with it, better," says Kalyan Roy, additional director (socio-economics) KMDA.

The JV mode has helped release large parcels of land for real estate development, Das points out. He estimates that prior to these public-private partnerships, individual private builders could put in place projects with 100,000- 300,000 sq. ft of realty space. As compared with this Udayan, the first public-private partnership project built by Bengal Ambuja, has two million sq. ft.

West Bengal has created about 10 JV companies, with 50-50 equity partnership between the state-run West Bengal Housing Board and different private partners. This apart, KMDA has been working on JV projects with other players. KMDA has also joined hands with DLF Ltd, to build an industrial township in over 4,840 acres, which is expected to house over 600,000 people.

But the biggest success story of the public-private partnership is the township in the making at Rajarhat (also called New Town) on the eastern fringe of Kolkata, where about 3,050 hectares (7,533.5 acres) are being acquired by the Housing Infrastructure Development Corp. in phases and allotted to different builders, commercial projects and individuals. Much of this land was agricultural, which has been bought out by the corporation. About 13 public-private projects are under construction or on completion mode here.

The public-private projects are essentially divided into three parts, catering to the lower, middle and high income groups. The housing for low-income groups are offered at subsidized rates, while the pricing of houses for middle-income is set at no-profit-no-loss levels. The builders make their profits in the high-income segment of the projects. Most of these projects offer upto 275 housing units.

Cross-subsidizing for the lower-income category, which accounts for 15% of the project size, the public-private projects operate on thinner margins (per unit), says Neotia.

The attraction, he says, lies in scale. Depending on the availability of land with the government, these projects can also cash in on prime land that comes relatively cheap, he admits. To be sure, the low land prices may not be sustainable in future. He and other developers insist that the projects are increasingly having to work with land bought at market price. This is particularly true of Rajarhaat. “When we avail land vested with the government, we are offered long-term payment plan," says Rahul Todi, managing director, Bengal Shrachi Housing Development Ltd.

In terms of pricing, the public-private partnership projects, given their branding, are defining the market price in certain places which are new to branded properties, says Abhijit Das. Neotia says the projects more or less keep with prevailing market price, when it comes to pricing of the high- income group housing units.

Todi, on the other hand, insists that the JVs are actually helping rein in the price. As a case in point, he says in New Town, the public-private projects are selling their high-income group apartments at Rs2,300-2,500 a sq. ft, while stand-alone private players such as Unitech Ltd, which is setting up a residential project on 100 acres, are selling at Rs3,000-3,500 per sq. ft.

In a state where real estate development was viewed with suspicion and run by fly-by-night operators, the participation of the state government has helped infuse life into the sector because low and middle -income groups are willing to risk their savings on government partnered homes.

“It renders the much-needed credibility factor to a real estate transaction," says Todi.

Market observers such as Jones Lang LaSalle say that this segment will continue to drive the branded market, with the government steering things with a socialist approach. The Kolkata Metropolitan Development Corp. has put in place an escrow account into which it posts all its revenue surpluses from the public-private partnerships. The money from this account is dedicated for building basic infrastructure around the city.

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