Poor environment can hurt Indian real estate sector: RICS CEO

Lack of skilled talent to take up crucial jobs such as financial modelling and project lifecycle management, construction standards that are below global benchmarks, climate risks, and challenges to enforcement of contracts are the red herrings that can hold back India’s real estate sector, according to the Royal Institute of Chartered Surveyors (RICS).

In an interview with Fortune India, Sean Tompkins, chief executive, RICS and Nimish Gupta, managing director, South Asia, spoke of the imperatives that India needs to focus on to unleash the potential of its “built environment” (man-made real estate and infrastructure projects).

Foremost among them is skill development, say Tompkins and Gupta of RICS, a global professional body that lays down industry standards for various functions allied to the real estate sector such as surveying, construction, valuation, and dispute resolution.

While India has a number of engineers, accountants, and architects, those with specialised skills to cater to the nuances of the real estate and infrastructure sectors are very few. Consequently, RICS, through the RICS School of Built Environment and distance-learning courses, impacted digitally, wants to grow a breed of professionals who will eventually lead to a more professional construction and real estate industry.

Tompkins, who is based in London, also said that New Delhi’s recent troubles with air pollution serve as a grim reminder that the Indian government needs to deal with environmental concerns on a war-footing if it wants its real estate sector to attract international investments.

Edited excerpts:

When it comes to standards governing the construction industry, how does India compare with its global peers and what are the desired changes?

Gupta: The biggest change needed is a greater focus on workers’ safety. In the UK, you have something known as Construction Design and Management Regulations, which govern construction standards. In India, the safety and security of construction workers generally tends to get compromised. Most developed markets have a well-established regulatory system with laws and statutes, which helps construction workers remain safe even as projects progress. We don’t see that in India. The Pradhan Mantri Kaushal Vikas Yojana envisions 15 million construction operators by 2022. The reality is that we only have 100,000 such operators at present.

This is because people engaged in the agriculture sector, despite low returns, don’t want to come to construction as they see it as unsafe. They don’t get paid on time, live in poor conditions in cities, and their health and safety is compromised. So a fundamental shift is required to ensure regulations that promote better development.

Many real estate developers, especially those developing affordable housing, may feel that ensuring such standards may lead to cost escalations. How can this challenge be mitigated?

Gupta: Earlier, if an accident occured at a construction site it would lead to a hold-up of a few days after which work would resume. But things have changed. An incident can potentially lead to a deadlock that can last months. Also, end-consumers are far more conscious and demanding of ethical practices being followed. Constructing a project the right way within the right timeframe at one go is far better than correcting errors and redoing the project, which can lead to time and cost overruns that can be detrimental for the promoters of such projects.

How does the Indian construction and real estate sector compare with other countries around the world and how can it improve its positioning vis-à-vis global investors?

Tompkins: In comparison to global markets like the UK, China, and Germany, India really hasn’t built the professional skills needed by this sector. Despite its incredible scale of population, India is a long way behind in capability and manpower – whether it is in construction management, cost consultancy, or real estate finance and investments.

This is the area where RICS is focussing the most, especially on skills such as construction project management and finance and real estate management, including valuation. Though India is the only country among major economies where we couldn’t get accreditation for a university, we think we can make inroads through the digital, distance-learning model. There are thousands of professionals working in this sector who don’t have the advanced professional skills that are required for the market today.

The Indian market has recently opened up to REITs (real estate investment trusts) and InvITs (infrastructure investment trusts). How do you see these asset classes developing in India and what can India do to attract more global investments in these sectors?

Tompkins: I think increased levels of transparency, stricter regulations, and standards are noticeable in India and that is critical. International investors are unlikely to come to a market where they don’t have transparency. Another area that needs some attention is climate resilience. The pollution that Delhi has witnessed in the last few days proves that you can't separate real estate from the reality of what’s happening in the natural ecosystem around you. I am sure the government will take appropriate action. If you don’t have climate-resilient cities, real estate investments in such markets will suffer.

Also critical from an investors’ point of view is the enforcement of contracts. In most sophisticated markets around the world, there are restrictions and strict requirements on how contracts are awarded. The government has to lead the way on this and award contracts in an open, transparent and ethical way. In India, enforcement of contracts requires significant reliance on the courts and the judicial system. In other parts of the world, arbitration and other non-judicial options are explored to settle disputes. Long delays in commissioning projects can hurt their economic viability.