As one of my peons sheepishly requested me to sign guarantee papers for a home loan he has applied for, I am forced to apply my mind to one of the worst kept secrets of India.
I don’t have an iota of doubt that, if you are living in urban India, you are either a slave or aspiring to be one.
The builders of India are real slave-masters that we all serve. They not only take the shylockian pound of our flesh, but carry on sucking our blood as long as we live. And yet, we the people carry on serving them blindly because they have a stranglehold on our political system that survives on this cancer sucking life out of poor Indians.
If I look back at the story of my peon, who is a typical Indian like millions living in my city, he is a hardworking migrant from nearby state with one dream. He wants to own a home in the city and call his family over.
With no real education, he has no option but to work hard to make about Rs 15,000 per month from which he can pay rent of Rs 2,000 for his bachelor pad shared with other men. But, getting a family over means at least 1BHK home, rent of which he simply can’t afford.
As millions of rural Indians who have moved to cities are having their lives revolving around this financial equation, we need to understand it in detail.
As my city of Ahmedabad is not really a Mumbai or Delhi, he has managed to identify a bare minimum 1BHK home in the outskirts of the city for about Rs 9 lakh.
Lured by a dream of home, he has dumped his entire savings of Rs 2 lakh, borrowed another Rs 2 lakh from “friends”, probably at 24 % per annum and hopes to get Rs 5 lakh from the bank under the Pradhan Mantri Awas Yojana (PMAY) that will reduce his monthly EMI to about Rs 2,500 that is just wee bit more than the rent he is paying.
Though I can’t figure out how he managed to save Rs 2 lakh (that amounts to his 13 month salary) or how he will pay back his “friends” (who are likely to be goon charging Rs 2,000 interest per month), I was happy to see that the state has recognised his plight and ensured that a large part of his interest is paid by the government.
While the equation is making me feel good and also luring people to buy homes, no one is realising the supply-side of this equation of what the builder is charging for.
For his paid-through-the-nose Rs 9 lakh, my peon will get a 30 sqmt badly constructed vertical slum with non-existent provision for maintenance. It will be a derelict ruin with narrow corridors and leaking pipes that the inhabitants will have no real resources to repair.
But, this is not the real problem.
Real problem is, his 30 sqmt home is constructed at about Rs 15,000 per sqmt on a Rs 6,000 per sqmt land using about 2 FSI. In simple terms, it will be a product manufactured for about Rs 5,40,000 (Rs 4,50,000 of construction cost and about Rs 90,000 land cost) sold at Rs 9,00,000.
While the builder makes Rs 3,60,000 profit for his 5,40,000 investment which amounts to nearly 65%, an unheard of profit margin for any other manufacturing business, I am tempted to look at his profit in terms of my peon’s earning.
The profit made by builder is nearly 3 years of my peon’s salary. In simple terms, my peon will slave for three years of his working life to enrich the builder.
If you feel that this is bad, try to understand the bigger impact of incredible profit margins and speculative gains of builders are doing to your day to day life.
If you feel your doctor is charging you high by Rs 500 per visit, please note that he will be sitting in a property and may have a home with cumulative cost of nearly Rs 1 crore, and hence you are indirectly paying for the 30-40 lakh profit the builder made from the doctor.
If you feel that a shop or a consultant or even a policeman taking bribe from you is charging you more, please understand that everyone is paying the builder a large part of his/her life’s earnings and hence are forced to recover that from you.
If we look at Indian desperation for real estate, nearly all of us end up spending 2 to 3 years of our working lives to pay for builders’ profit.
There is no doubt that making profit is a right of every businessman, but Indian equation needs to be understood in terms of its social cost.
Builders became profiteering based on claims of risk; but, in reality, they have used the risk card to earn exorbitant profits. Today real estate players are so rich and powerful that they can drive up rates of property at will, alter state policies, destroy city fabric and yet state and people have to pay up for their profit.
About time that state wakes up to the truth that society is suffering from the builder malaise. The need of the hour is not to fund poor people to pay builders, but to take the bottom out of land speculation.
While state is bringing in mechanisms like Real Estate Regulatory Authority (RERA) to safeguard consumer interests, it is still not addressing the core problem of people. The real way out is to tweak the market forces in a way that builders’ profits are brought down. Real estate business needs to have rational profit margins linked with efforts and not with speculation.
If need be, for the next phase where massive amount of EWS and LIG housing is required, state should consider regulating profit-making in real estate.
A way out could be state offering PPP models on state-owned land where transparent profit-making can be allowed in open book format. Such an idea may sound retrograde in the era of privatisation that India is banking on for growth of economy, but it is a social need to have homes and it can’t be made available for exploitation of many by few.
Real estate holds the real key to not just Indian economy but of quality life of you and me. At this point we have no choice but to serve our masters, but we need to wake up, the Indian state needs to wake up and end this new age slavery.
First published on August 2nd 2018, reproduced by consent of the author.