Scrap ULCRA: Niranjan Hiranandani

DINNER WITH BS

We decided to have dinner with Niranjan Hiranandani, managing director of Hiranandani Constructions Ltd, instead of the traditional BS lunch since he had to fly to Delhi early morning that day to give a speech at the National Real Estate Development Council (NREDC).

He took an evening flight back to Mumbai and reached Jewel of India ahead of us.

The obvious first question to him, even before we settle down at this Indian restaurant at Nehru Centre, Worli, is what did he say at the NREDC function?

Hasn't the Budget done enough for housing by allowing 100 per cent foreign direct investment (FDI) in this sector? "This is an industry that offers maximum employment opportunities directly and indirectly, and yet there is no focus on this sector.

What do you do with 100 per cent FDI? It's like giving a half-blind man a pair of glasses without the frame. What's the use of the FDI without scrapping the Urban Land Ceiling and Regulation Act (ULCRA)?" asks Hiranandani, well-known for speaking his mind.

We suggest drinks and Hiranandani orders gin and tonic and attacks the plate of masala papad as soon as it arrives. For starters, he orders pudina paneer tikka and we go for a beer and coke to wash down our lahori chicken.

He turned vegetarian last year and does not want to go back on the promise he made to his wife.

Hiranandani is a first generation entrepreneur. Once he completed college, Hiranandani's father "" a famous ENT surgeon and a Padma Bhushan award winner "" took him to meet his friend Nani Palkiwala, then working with the Tatas.

Palkiwala advised him to become a chartered accountant and study in London. Hiranandani joined CC Chokshi & Co, which has since become part of Deloitte & Touche.

He even taught at a college for two years before starting out on his own.

His elder brother, Surendra Hiranandani who is a doctor, agreed to invest in Hiranandani's textile business venture back in 1976-77, when he started with a powerloom unit called Sanjay Textiles.

When the going got tough and his brother decided to pull out his investment from the textile venture, Hiranandani realised that it was time to get out before "I could lose my shirt".

In monetary terms the losses incurred by the textile unit were not too big but it was leading to stress in the family. So he closed down the textile unit that was making suiting and shirting for Gwalior Rayon, and jumped into the real estate business starting with a small plot of one-lakh square feet bought in Versova, Andheri, in the western suburbs of Mumbai.

It was a time when builders were treated at par with gangsters like Haji Mastan and Yusuf Patel.

"We bought the plot of land near the beach and decided that we must make a paradigm shift in the quality of construction. Initially, we sold the building at Rs 850 per square foot against Lokhanwala's rate of Rs 1,300 per square foot in the same area.

By the time we completed the building, we were able to price it higher than that of Lokhanwala," says Hiranandani. In the 1970s, even the new projects leaked and even the best of construction engineers accepted that as normal, he says.

We ask him about his latest real estate project in Dubai. "We are constructing a 90-storey tower, the fifth-tallest residential tower in the world. My son is looking after this," Hiranandani says with pride.

What's the cost of this project? "Well, it's a 1.2 million square foot structure and we have a priced it at 900 dirhams per square foot. You can calculate," he says.

We use a paper napkin to get our maths right. It's over Rs 1,400 crore.

So, is he the biggest builder in the country? "Certainly not. DLF is probably the biggest builder. If you combine the turnover of all the Rahejas, the group will be the second largest," he says.

What is his personal net worth? Hiranandani smiles and is not willing to spell it out. As we prod him further and throw various numbers at him, he nods either way and finally agrees that it could be around Rs 500 crore or a little more.

What kind of profit market does a real estate builder enjoy? "Around 30 per cent, depending on the project," he says. He has developed over two crore square foot space, mostly in Mumbai and Thane.

As the food arrives "" dal-e-khas, tandoori roti and dum subz masala birayani for him and fish malwani for us "" we shift the focus to Powai, a western suburb in Mumbai, one of the largest integrated townships in India, spread over 300 acres, developed by Hiranandani.

"In 1987, the property was in an area where there was no water, no electricity, no roads, no telephone lines.... the access was bad and no developers had entered the area," reminisces Hiranandani.

He took upon the challenge to develop 300 acres of land that initially sold at Rs 500 per square foot to the lower-middle class. "But as we went on constructing, affluent people approached us and the value of property went up," he says.

He also takes pride in conceptualising 1200-rooms and three hotels in one complex (Hyatt Regency, Le Meridien and ITC Grand Maratha) near the international airport in Mumbai, set up in association with the Dynamix group.

"Everyone thought it would be impossible to market 1,200 hotel rooms at a time when there were 2,000 hotel rooms in Mumbai," says Hiranandani.

Have all his projects been successful? Hiranandani smiles and says there have been failures, too. For instance, it was "foolish" of him to try to set up a dairy firm at Baramati.

We want to know whether there was political pressure on him to take up the Baramati project. He does not give a straight answer.

But when it comes to the role of bureaucracy and politicians in the real estate sector, Hiranandani is livid. He can quantify the price of corruption in the housing sector "" Rs 100 per square foot.

"You need 52 permissions for a housing project. One even needs to go to the Centre for approval of any project in excess of Rs 50 crore because of a fight between two politicians. In 1976, 40 per cent of Mumbai was living in slums. Today, it has gone up to 66 per cent on a much larger base," he says blaming ULCRA for the housing shortage.

For just a sum of Rs 10,000, one can get a 500-square feet flat, he says. How? "That's provided the government is willing to give land free of cost [as had been suggested earlier under the ULCRA in terms of the salt pans]. A house would be valued at about Rs 5 to 6 lakh, taking the construction cost at Rs 500 per square foot and subsidised property value. An individual would need to pay Rs 10,000 upfront and the balance could be met through housing loans taken over a period of 20 years where instalments would amount to about Rs 10,000 annually," he calculates quickly.

We ask him how the business of real estate has changed. Things like bureaucracy and corruption have not changed, he says. But there are other perceptible changes.

For instance, in 1981, when Hiranandani started his business, the black and white component for buying a flat was about 50:50. That was at a time when tax rates were as high as 97 per cent on earnings over Rs 1 lakh. "Today most transactions are done in cheques. In 1991, 40 per cent of the buyers were actual users and 60 per cent investors. Today, this proportion is 97:3. Finally, the average age of a flat buyer has come down from 42 to 31 over the past decade," he reveals.

So when will housing be affordable for all? "The National Housing and Habitat Policy 1998, has spelt out how affordable housing for all can be provided.

But unless the ULCRA is scrapped and stamp duties reduced, it will not happen. There is a lack of political will to do so," Hiranandani says passionately.

Hiranandani decides to skip dessert and go home. As we get up to leave, we find him apologising to a couple at the next table for talking loudly. One of the waiters of Jewel of India comes forward and greets him.

"He happens to be one of the students at a college where I am the president," Hiranandani explains while stepping out of the restaurant.

We notice there is no armed guard around him. .

A few years ago, he had two gunmen in toe after he refused to respond to pay extortion money from some underworld gangs.