The Surat Builders’ Association: In a Fast Changing City, Varying Perspectives and Incomplete Information

As our arrival in Surat coincided with a regular meeting of the Surat Builders Association, we were able to discuss with several local developers Surat’s evolution and growth, their engagement with policymakers and their views on the appropriate ways for developers to get involved in the city’s development.

Developers’ vision for a competitive Surat. Not for the first time in India, we got a taste of the divide between developers and other urban stakeholders. Developers feel that their vision of the Surat of the future – an internationally competitive Surat – rests on connectivity, improved road and airport infrastructure, a clear role for the municipal government and a better environment for doing business and attracting investment. They expressed frustration about slow change and concern about cities like Ahmedabad surging ahead. (In fact, Surat and Ahmedabad are surprisingly similar in size, but it’s true that Ahmedabad has a bigger city feeling to it). They underlined airport construction delays, wanted longer-term planning for roads, and noted that developers’ motivations were often viewed with misgivings. Corruption and inadequate infrastructure, they said, raised the cost of development and made it difficult for developers to take a greater role in planning the city’s evolution. They wanted a faster, more transparent decision-making process and more forward thinking on infrastructure so that the lengthy implementation of roads and services wouldn’t lag need and demand.

Land, corruption and the high cost of doing business. Not surprisingly, land supply and land prices are central issues. Fragmented government land administration and the multiplicity of authorities with control over different land areas/parcels ties up prime land that should be developed.

Some in this group see the dysfunction and non-transparency of land prices as the most problematic source of corruption (rather than permits, for example). They posted that land could absorb more than a third of development costs even though officially it might not seem to be the case. For instance, if a seller wants to disguise the true price of the sale to avoid paying the Stamp Tax on the sale, the seller can insist on half the sale being on the books and half being off in cash. The “white” price can be at the government’s floor while another 50% gets paid in cash.

We noted that perceptions of the severity of corruption in general, as well as its sources, varied across India. This might depend on whether a developer has a substantial land bank or not prior to recent years’ market expansion. The developers also admit that government is not the only source of corruption because non-transparency of land prices is perpetuated by sellers evading the Stamp Duty on land sales and the registration fee as well.

Regardless, these developers spoke to the benefit of more transparent land pricing as a means of reducing the high cost of corruption. All were encouraged by the new Town Planning Act, which would increase their FSI, attempt to regularize land costs, plan infrastructure and provide social infrastructure. They admitted that this unique step for Gujarat and Maharashtra distinguished the region.

Even so, a case-by-case extension of FAR up to 25 floors drew some criticism for not being transparent. Government is improving the transparency of land prices, but prices are not updated frequently enough when land prices change dramatically fast. While availability of project finance has improved in the past five years, especially for large projects like SEZs and townships, the government’s role in improving land price clarity is instrumental in improving the availability of financing.

We discussed with these developers the idea of a single government window for development to limit corruption and streamline the collection of permits (as much as 20-30). They liked the idea but couldn’t imagine the government getting behind such a measure.

Affordable housing. This group was clear on the difference between low cost housing for the working poor and affordable housing across the middle income spectrum. Regardless, all noted the commercial appeal of high volume home building and sales but expressed concern at the lack of government tax incentives to lower their risk and improve their incentives to participate in the market.

Green building. While everyone in the group agreed that green building would be adopted over time, only one had seriously costed out the additional elements for greening a commercial building. They simply had not yet seen the connection between the benefits and the costs of green buildings, which suggests either pricing distortions, limited information about available technologies or very high discount rates.  The one developer who had costed the differential of a green building arrived at a cost increment of 25%-30% – too expensive to execute. That this group did not know GRIHA spoke to the need for more outreach on TERI’s part to expand beyond institutional markets.

Transit oriented development. Surat has a plan for BRT in place, but no policy to promote transit-oriented development. As a result, developers didn’t note any particular compulsion to focus on developing around public transit.

Dialogue with government and other urban stakeholders. Although well aware of their negative image, developers feel their interaction with the municipal government could and should be more constructive. Substantial differences of opinion between the SMC and the developers over the implementation of the city development plan had surrounded the distribution of parks and housing for low income groups. Developers had been advocating for more concentration of low income neighborhoods, more standardized road infrastructure, better means for controlling corruption, computerized land records and more advice on appropriate infrastructure development models.

Unfortunately, this conversation highlighted many of the issues that come up in the dialogue between cities, planners and developers. There is a real opportunity to bring developers along in the process of making the city more inclusive and sustainable, but the dialogue also has to address the gap in expectations. Developers have to be oriented economically and socially toward inclusion and sustainability because the prevailing rationale under which they operate dictates spatial exclusion. Standards, codes, zoning and communication have to communicate the end goal of mixed neighborhoods and the benefits of open public space. This exchange can certainly be turned around but it requires education, communication, messaging and incentives like additional FSI.

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