India Real Estate – Make Hay While The Sun Shines!

When confronted with danger the Ostrich digs its head in the sand, with a belief that if it can ignore the impending danger, the danger will also ignore it. I had slowly started to believe in the Ostrich theory but my sane side cautioned me to take a more rationale approach. In India everyone is so carried away with the real estate boom that safety is being ignored and compromised.

The players in the business of real estate are the bankers, financial institutes, insurance companies, developers/builders and not to forget the end user. The bankers are busy pumping funds in housing loans, which are of course considered low risk – high return investment, real estate funds and financial institutions are making a quick buck while they can, keeping an keen eye on the exit strategy in case of a crash, builders and developers are busy racking in millions with no responsibility or accountability and finally the common man is content with the “feel good factor” that his investment is going to continue rising by a whooping 30-40% annually at least as per the hundreds of articles on the real estate outlook for India. Reason enough for all with a little extra cash to make an investment. Every one is happy and every one is making money, so why this fuss about safety?

Let me start by asking, how much time does it take for a Bank or for that matter Insurance Company to go bankrupt? …………….you guessed wrong. 40 seconds is all it takes. That’s what it took during the Northridge Earthquake of 1994 in United States and the story repeated the following year when an Earthquake struck Kobe, Japan. The estimated loss was so many Billion Dollars that the Blue Chips had no option but to declare themselves bankrupt and eventually the Government had to step in to partially bail them out. The Reserve Bank of India has thrown some caution to the industry, but the magic of “Real Bucks” have blurred these warnings.

Let us hypothetically speak of a scenario where an earthquake strikes say 300 KM from Mumbai or for that matter Delhi (don’t be surprised there are many fault lines running within that distance). The immediate effect would be that hundreds of buildings would come crashing down, and thousands more would have sustained un-repairable damage, something similar to what happened in Ahmedabad in January 2001. How will the Bankers recover the disbursed loans when the very property they have financed does not exist? Would the insurance companies be able to foot the bill for the damage claims? Even large banks like ICICI and HDFC would find it next to impossible to absorb this loss. The salvation for smaller banks and insurance companies would be in getting declared Bankrupt.

For those who are not so familiar with the seismic jargon, majority of the buildings in Mumbai or Delhi are not even Earthquake Resistant – Life Safety implying that these would definitely collapse in a seismic event. The buildings that are Earthquake Resistant – Life Safety would have to be demolished and re-built as these are primarily designed for saving lives of its occupants by preventing total collapse. Life Safety buildings absorb the Quake Shock by inflicting structural damage upon itself.

Earthquake Protection is classified into three categories, Earthquake Resistant – Fully Operational, Earthquake Resistant – Immediate Occupancy and Earthquake Resistant – Life Safety. Simply stating that a building is Earthquake Resistant has no meaning as it does not imply anything as to its performance, survival ability or post quake use. There exist well documented literature like FEMA-389 (available free online), which elaborates on the different levels of earthquake protection and the expected performance of such structures.

This information has been kept out-of-bounds for the Indian Public. Till date no Indian document speaks about the different levels of protection possible. Bureau of Indian Standards periodically publishes and reviews IS-1893 – The Indian Seismic Code. However no attempt has been made to include information for sensitizing the engineers and the public on various levels of protection possible. This is in total contrast to the policy being adopted in countries like Japan and United States. A direct consequence is that even those who can afford and would desire a higher level of protection are unable to do so due to lack of awareness.

Not many are aware, that even in our major cities and that includes the National Capital, not a single hospital will be functional incase of an earthquake. Hospitals the world over in seismically active regions are constructed to Earthquake Resistant – Fully Operational standards. In India the authorities have not yet recognized the various categories of protection. Who would treat the injured and the sick at a time most required remains unanswered. Interestingly enough as per the information from Prime Minister’s Office, Rs. 113.49 Crores has been spent on a Base-Isolated hospital at Bhuj from the Prime Ministers National Relief Fund. This hospital should be as per Earthquake Resistant – Fully Operational standard.

Adding to the woes of the common man, till date the real estate sector of our country remains un-regulated. In July 2006 there were positive reports that the Ministry of Urban Development would be tabling the “Real Estate Management (Regulation and Control) Bill” in the Parliament during the monsoon session. However for reasons best known to the offices of power it never saw the light of the day. Such media frenzy has again gained momentum recently. Only time will tell if the bill finally gets tabled in the current budget session.

There are three key issues in the “Real Estate Management (Regulation and Control) Bill” that can make a significant impact on the industry and the common man. Firstly, all built apartments would have to be sold on carpet area and not super built-up area like being done now. Carpet area is easily verifiable and can be calculated after taking a few room measurements. This would ensure that the buyer is not cheated and he gets what he is paying for.

Secondly the transparency in the sale area would also make the land area calculations simpler. It would no longer be possible for the not so honest builders to siphon off society land in connivance with corrupt Municipality officials. For example incase the built-up area of a multi-story apartment block is 1,50,000 square foot and FSI/FAR is 1.5 (150%), it would imply that the society land area should be 1,00,000 square foot, incase its less the regulator could be approached for necessary action.

For ensuring safety the bill proposes Earthquake Resistant to be made mandatory and legally enforceable. The Builders/Developers would also have to stand guarantee. Ministry of Urban Development would have to decide as to what level of safety should be made mandatory, Earthquake Resistant – Life Safety or Earthquake Resistant – Immediate Occupancy. One thought process is that as the collapse of a Highrises would have far grater collateral damage as compared to a low-rise so the protection standard should also be a notch higher.

India is not averse to the effects of Natural Disasters. We have had far too many for the memory to erode so easily, be it the earthquakes of Bhuj, Kashmir or the Tsunami in the Andaman’s in the recent past. For this reason did the National Disaster Management Authority came into being in the year 2005. As per NDMA a “comprehensive programme has been taken up for earthquake risk mitigation”. It accepts that in “many cases, the Building regulations do not incorporate the BIS codes” and that the “lack of knowledge regarding seismically safe construction among the architects and engineers as well as lack of awareness among the population” needs to be addressed.

When the NDMA was constituted there were great expectations more so as it was chaired by the Honourable Prime Minister Dr. Manmohan Singh. Prof. NVC Menon, member National Disaster Management Authority recently announced in Delhi that the Government was in the process of finalizing the National Disaster Management Policy that would come into effect from 1st April 2007. Hopefully this policy would comprehensively cover all safety aspects including clear guidelines to sensitize the masses. It is ironical that though there are many write ups on the high seismicity of the Indian Sub Continent there isn’t one advertisement in the newspapers by the Government educating the public on these aspects. Disaster awareness is all that the Government has to ensure and the masses (at least the educated ones) will take the necessary precautionary measures. Let’s start by listing out the various levels of safety. Sensitizing a population of 100 Crores is sure a Herculean task.