‘To say that MNCs have raised the
prices of real estate is a fallacy’
A self-confessed “strong proponent” of globalisation and liberalisation, Michael W J Thompson is chief executive of Colliers Jardine, one of Asia’s leading real estate organisations offering a range of services like property management, real estate consultancy and real estate fund management.
Colliers Jardine initiated its entry in to India three years ago with a tie-up with the Housing Finance Development Corporation Limited and Infrastructure Leasing & Financial Services Limited. Since then it has established itself in four metropolitan cities of India.
In an interview to Syed Firdaus Ashraf,Thompson discusses various issues concerning the real estate industry in India. Excerpts:
What initiated your company’s entry in to India?
Colliers Jardine is a Hong Kong based company. We have 38 offices in 11 countries. The process of liberalisation inevitably brought a number of major multinational companies in to the Indian market. And since we provide a range of integrated property services to these multinationals around Asia we are in India for the last three years. Unfortunately, for whatever reason, real estate services in India were never considered as a profession. The situation has changed since we have come. We were able to bring professional standards of real estate services that exist in other developed countries. And this has enabled us to become established in a wider opportunity to work with Indian corporates.
Why choose HDFC and IL&FS as partners?
You must put this question to HDFC and IL&FS. I don’t know nor am I able to comment on behalf of HDFC and IL&FS. But I think fundamentally we would not have come in to India unless we had partners. The Indian real estate market in my opinion is in bear traps. And I think you need to understand how the Indian market and Indian business community function. It is very important. So we in fact came to India on the basis that we want to establish a partnership with an Indian company. And from our perspective we are very happy with this joint venture with HDFC and IL&FS. In fact, Colliers Jardine is also a result of a merger between Colliers and Jardine. So yes, there is a history of mutually beneficial mergers.
What are the objectives of your venture?
The objective is to provide the highest professional and ethical services to Indian corporates, primarily the MNCs. Because at the moment due to liberalisation many MNCs are coming to India requiring services. But ultimately our future lies in servicing the requirements of the Indian corporates. It is only now that Indian corporates are beginning to realise that real estate is one of the core primary factors of production. And you need to look at the utility of real estate assets very carefully. In the competitive environment you need to maximise returns on the asset base. And real estate is one of the primary asset bases for many Indian companies. The questions and problems we were receiving at Vienna from Indian companies addressed the issues on the real estate asset. Indian corporates did not know what to do with their real estate. I need to have land, buildings to accommodate my people. How best do I ensure this in an efficient and cost effective manner? And these are the issues on which we are concentrating now.
Why is there a slump in the real estate market? Do you think prices were artificially jacked up three years ago?
Let’s talk of Bombay, because India is too geographically diverse. If you look at Bombay, it is not a market in the true sense. There is no equilibrium which is able to develop between demand and supply. Supply is heavily inelastic. It cannot respond to changes in demand. So, no market forces can operate in Bombay. Slumps occurred in Bombay because there has been a reduction in demand. If you see it from the other side it is not true. Bombay is still an active market because people require housing, corporates are still coming to Bombay and expanding. I think the reality probably is: Bombay was never a real market in the economic sense. There was a massive inflow of speculative capital in the last five years. Supply was constrained and market prices rose to an artificial high.
Bombay is a linear city and the whole population has to travel from one end to another to work. Is there any way to change this?
Yes, I agree Bombay is a linear city. It takes a lot of time to commute. But that is not unusual. You spend two to three hours while commuting in any large urban area in London. The situation is worse in Bangkok, compared to Bombay. Bombay is not heavily polluted compared to many cities in the world. The situation is changing now as many non-financial sector companies are moving to Andheri and Kurla which is in North Bombay. They are prime suburban commercial areas. Particularly Kurla, which is located on the central line, and has a massive potential for commercialisation. I think you don’t need to be in South Bombay unless you are in the financial sector. I can see in the next ten years Kurla will grow as Central New York. You can buy a nice apartment in Thane and come to work in Kurla. If you do that you are enabling people to live in Bombay and do their work. I think it is a great fallacy to say that it’s too expensive to live in Bombay. Bombay can accommodate all the requirements if we do it cost effectively. I think we need to promote this idea. But you cannot do this in South Bombay.
What do you think about the slum redevelopment policy which has been introduced by the Maharashtra state government for Bombay?
It is very topical and it is too early to comment on it. But it is an excellent policy which the Maharashtra government has innovated in its legislative reforms. In concept it is excellent.
How different are you from your competitors?
Well, I think you must ask our clients. Our clients realise that compared to our multinational competitors we have a flat bureaucratic structure and in short it is our team effort which makes a difference.
How much business have you done so far? And how much do you expect in the coming five years?
We can’t actually publish financial figures. So I would not dicuss it. We have developed four offices in India. They are located at Delhi, Bangalore, Madras, and Bombay. We are looking at Calcutta. We were the first to be approved by the Indian government as an Indian company. We will be probably operating in Calcutta in the coming six to nine months. We are doing reasonably well. I’m very happy with our growth. But there is still tremendous potential. I think in the coming five years we will grow substantially. The only limitation is to train our staff. We do not rely on bringing expertise in to India. The skill in this business is to train and develop our Indian staff. So, in the coming six months we will send our large number of staff offshore. And this way we will develop the expertise.
After liberalisation, in Gurgaon, Haryana, farmers have sold their land to multinational companies and in many Indian villages this is happening. Can you comment on this, particularly because this is affecting the occupation of Indian farmers and the economy as a whole?
Multinational companies are not playing a big role in the real estate market. All this is fallacy. MNCs’ requirements are very small. In Gurgaon, MNCs are not buying up real estate but it is the Indian businessmen who are buying up. They are buying because there is a need to develop housing in India. And that trend will continue inevitably because we are a population of 900 million. The urbanisation trend will grow and more cities will have to be developed and for that you require land.
Why then are people blaming MNCs? And it is alleged that MNCs are paying Rs 40,000 minimum as house rent for their chief executives in Bombay and Delhi.
It may be very convinent to push the blame on to MNCs. How many foreigners are there in India? There are more foreigners in China compared to India. Primarily because you don’t need many foreigners. Because the quality of senior and middle Indian management is very good. English is entrenched in the educating classes. You don’t need foreigners here. So to say that MNCs have raised the prices of real estate is a fallacy.
How will you deny the allegation that there are nearly 1400 foreign senior management people staying in India?
Is that too many? I don’t know individual companies. We have a large number of experts working in the Indionesian market. But we don’t need them in India. When you develop corporate culture in India you need foreigners to do that. If you see the other side, how many Indians are being sent offshore to work in Hong Kong and Singapore? If you see American and Australian newspapers many Indians are working there. It’s ridiculous. We should be looking at mobility of labour; it is one of the fundamentals of economics. No foreigners come to stay here. If they come to invest you must welcome them. No one wants to live here. Do your job through liberalisation, improve manufacturing and go back to your country. And ultimately Indian management replaces them. In the same way one day some Indian will replace me.
That means globalisation is taking place?
Yes it is and I am a very strong proponent of globalisation and liberalisation. Because India has enormous strength. We should open wide rather than hold back. Have we got many foreigners here? No, because there is tremendous opportunity for Indians to develop an export and manufacturing base which will develop the economy. Where do you think you are going to create jobs in this country? You need capital to create jobs. And India is not alone. Every country needs capital. But everyone is in competition. You are not an island standing alone. India is competing with Indonesia, Thailand and all the tigers of Asia. We need to have major manufacturing companies in India because we need to export. And I’m very pleased with this Budget. It shows that there can be no reversal of the liberalisation policy. Now people realise this. They know that whichever party is in power, liberalisation will not be reversed.
How do you read India as compared to other Asian countries?
I’m biased because I’m here. I believe India has the most enormous potential. Look at China; what they have done in the last 15 years. If we continue the process of liberalisation, we will be the best. We have a democracy. We are not like China.
When you say liberalisation was good for the country then why did the Congress party which launched the reform programme secure only 135 seats in Parliament in the last elections?
I don’t know. But people say the benefits of liberalisation did not touch the masses. And in many ways it may be true. But it takes time for any reforms to touch the masses. You have to touch many other segments first. Salaries of manual labour and unskilled workers will improve but it takes time. People say liberalisation has benefitted only rich people and not the common man. But it takes time. I think what will make the difference is the major manufacturing companies which will create more jobs and good money. That is a real beginning. And that is how change will come in society. Millions of dollars are pouring in to this country. And once you start exporting goods you get added values.
What is your opinion on setting up an infrastructure development finance company?
It’s a great concept. I fully endorse it because you need infrastructure to facilitate the export companies.
How difficult is it to operate in the real estate business, when there is so much involvement of criminals and politicians?
Real estate business cannot be done competitively without the cash component. I can tell you that we have been here for anumber of years and not once have we have participated in any cash transaction. It is harder to do that. But it can be done. If you want to play in the black market you can do so. But if you don’t want to, you can avoid it. And that is what we advise all our clients, not to get involved in cash transactions. Bribery and corruption exist the world over. It is not unique to India. But you can exist in India without the black market. And our mere existence and expansion is proof of this.
What is your opinion of the black market. Is it true that we need a better tax system to avoid the black market?
The tax structure has changed radically in the last five years. People are more attracted to white money. I think the black market days are numbered.
What changes would you like to see implemented by the Indian government?
The Rent Act needs to be looked at. We need to consider how we can segment the real estate market. We have to look at residential and non-residental. And obviously the residential still needs to be protected and I would not like to have any reform there. Because it is quite different. In non-residental areas you certainly have to accelerate growth because the government has to provide a level playing field where market forces can operate. I think they are doing it but they have to certainly accelerate the process of reform.
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