Integrated townships in India - Today and Tomorrow
What are Integrated townships?
They are clusters of housing and commercial businesses with associated infrastructure such as roads, schools, hospitals, convenience shopping, water treatment plants, drainage and sewage facilities. With urban areas getting more crowded and falling increasingly short on future development potential, integrated townships have been correctly identified as a potential solution.
Integrated townships are rather complex with lower FAR, more open areas and an emphasis on creating a sustainable living ecosystem with residential and commercial spaces supported by an infrastructure backbone of power, roads, water, drainage and sewage - a virtual living and breathing city.
With land being a state subject, different states have varying policies on integrated townships. While the norm for land requirement for such projects is 100 acres, some states such as West Bengal and Rajasthan have relaxed their minimum land requirement criteria.
There is a marked lack of residential density in fast-growing cities such as Gurgaon, and State Governments are promoting integrated township projects by proposing the easing of development norms for such projects. This has caused many developers to enter this segment of development.
DLF, Tata, Ansal API and IREO already have integrated township projects in various stages of development across the major Indian cities like NCR-Delhi. HIRCO is creating similar townships in Panvel on the periphery of Mumbai, and in Chennai. Omaxe, Parsvnath, Emaar MGF, BPTP and Kumar Builders have also announced multiple integrated township projects. In Noida (NCR), developers such as Logix and Jaypee Group are developing golf-centric townships, in effect offering a value addition option to customers.
The new master plans for all major cities are looking at expanding the boundaries of their urban sprawl. These new development precincts would benefit significantly if the integrated township model were given high preference and incentives, since they provide a more holistic living environment and prevent the mushrooming of unplanned urban villages.
Over the next 2-5 years, most metros and satellite cities are likely to see increased launches of integrated township projects. Tier 2 cities and State capitals which see the population from the interiors gravitating towards them are also likely to see such projects being launched. Though arriving at an exact number is challenging, it seems evident that at a few hundred such projects are likely to be in different stages of development over the next five-year period.
Private equity funds will show a marked predilection for targeting the residential portion of such township projects. In fact, many such investments are expected over the short to medium term. It is significant to note that, notwithstanding the other components of integrated townships, it is the demand for housing that will continue to be the dominant factor that will drive the development of such projects.
Gloom in the boom
Sadly, despite all the positive hype around this form of development, integrated township projects grapple with the same problems that plague the rest of the real estate sector in India.
Hurdle #1 - Land Acquisition
The absence of proper title deeds and the opaque functioning of local revenue departments create the first hurdle in such projects – namely land acquisition. Obviously, this is the most essential aspect and consolidating contiguous land parcels through multiple owners, adopting the local vernacular and negotiations and paperwork are a thoroughly exhaustive process.
Lack of proper land titles, wills, disputes and the near-impossibility of tracing ancestral ownership contribute towards a long-drawn legal due diligence process. Absence of title insurance also adds to the legally vexatious issue of multiple sales and forged ownership documents.
To some extent, this problem is now being addressed by land aggregators, who help developers save precious time in chasing individual owners. Nevertheless, the legal due diligence is still a problem as land records are still maintained in an obsolete manner which is, as of now, miles away from the computerized process that is the clear need of the hour.
Hurdle #2 - Red Tape
The lumbering mechanisms that drive policy-making at the State and local municipal and town planning authority levels constitute the next set of hurdles. Approvals for real estate projects have already been highlighted as a major inflexion point, where developers shuttle between different state departments like forests, environment, power, water and planning before getting all requisite approvals for integrated townships.
There are different approvals needed for submitting project plans, getting construction permits and environmental clearances, among others. It is estimated that for a simple group housing project, nearly 52 different approvals are needed. Not only does this lengthy process create delays - it increases the holding costs for the developer, causing project costs to spiral upwards.
Hurdle #3 - Lack of Infrastructure On The Peripheries
Because of their huge mandatory land requirements, integrated townships need to be developed outside the main urban areas of any city. The city’s peripheries are usually low on infrastructure support, and development of integrated townships needs such support to flourish. Public infrastructure development usually follows any region's development with a lag. This means that the infrastructure does not keep pace with the development, and is usually planned reactively rather than being forward looking.
Integrated townships are designed to house a large number of families as well as commercial establishments. Infrastructure is pivotal in making such developments inhabitable and commercially viable. Most big Indian cities are struggling with issues of power, water and drainage, not to mention a snail-like pace of road network expansion. In such a scenario, integrated townships are likely to struggle with lack of support infrastructure for a while to come. Though the internal infrastructure such as roads, drainage and water connections as well as social infrastructure has to be provided by the developer, the external linkage to the state infrastructure backbone is imperative.
Hurdle #4 - Capital Intensiveness
The huge investment needed upfront for the land acquisition phase – compounded by the mandatory long-term commitment of substantial funds towards development - has created an entry barrier for integrated townships which only large realty groups can scale. Even in their case, such long-term commitment of monies and the lengthy gestation period tend to deflate the enthusiasm of most developers. This by no means indicates that the integrated township model is inherently flawed - successful examples such as Magarpatta City in Pune illustrate that it is indeed possible to create the right framework of development to achieve optimal results.
What The Future Holds - Or Should Hold - In Store
There has been demand for easing the FDI norms for integrated townships, the intention being the prevention of speculation and attracting foreign funds to invest in the development of long-term infrastructure. With lock-in norms in place, the Government may look at easing the investment parameters. Meanwhile, many State Governments are already relaxing the land requirement norms for integrated townships.
With the focus of integrated townships towards creating affordable housing as well as infrastructural development, the model is a prime candidate for being granted infrastructure status. If and when this happens, it will provide access to cheaper and more established sources of funds while also providing the kind of tax benefits to developers that are needed to make this model of development more attractive to them.
The Central Government has already opened the doors for External Commercial Borrowings (ECBs) in integrated township development. This provides access to cheap sources of finance and has had a positive impact on this form of development.
Single window clearance has been a long-standing demand for the real estate sector. If implemented, it will greatly aid larger projects such as integrated townships, as well. Local municipal authorities lack funds to undertake an urbanization drive of any significant scale in the major cities. In such situations, integrated townships with a focus on development of ancillary infrastructure are a clear solution. Hence, financial incentives and faster clearances from State Governments are paramount requirements.
02 Dec - 10:00 hrs
Founder & CEO, Right Horizons