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The unreal estate

The tragic collapse of the 11-storeyed building at Moulivakkam, Chennai, took on its toll 61 lives. 27 were rescued and several are reported missing.

It’s true that the area experienced heavy rains and more importantly, lightning and thunder of serious magnitude. I did have a measure of this when I climbed the terrace of the Economist House to check with the roof top solar power modules. It is quite probable the building could have been struck by a powerful lightning. It was the tallest building in that area and that could have attracted the lightning.

The tragic incident reinforced the widely held belief of corruption, absence of an effective regulator and lack of sound practices in civil construction. The construction industry attracts large investments, provides huge employment and appears to be one that is open for all. Politicians of every hue and those who can knit political connections are attracted by the real estate business. The first stage is to acquire land in large areas followed by integrating this with the construction business.  In Tamil Nadu, such connections are common.

 

Pervasive corruption…

This powerful nexus thrives on corruption, bending of rules and inevitable compromises in standards. Jayaraj Sivan provides a graphic description of this in Times of India: “We end up spending Rs 150 per square feet even before moving a stone on the site. It is the middle-class home buyer who ultimately bears the brunt.”

In a system where dozens of clearances are required from several state agencies and with no strict enforcement of standards, the scope for such corruption could be understood. Enterprising businessmen were quick to take advantage. I cite an instance of the enterprise involved:

I function from the Guindy Industrial Estate that was set up in the 1950s and proved an illustrious model: the infrastructure provided and the attractive terms offered, initially through cheap rentals backed by a government passionate about development of small industries, helped attract hundreds of first generation entrepreneurs. For over three decades, the Estate thrived through hundreds of industrial units striving for excellence in manufacturing. The priority extended for the small sector with liberal excise duty and other concessions contributed to the entrepreneurs preferring to remain small and grow laterally with new small units. This small size prevented them from accessing technology or introducing sound management principles. Over time, with the huge increase in the real estate value, the second generation and beyond, realised the value of the real estate and quit. Over time, the real estate value increased so high that it became non-viable to run the unit in the small-scale sector.

 

Enters IT, requiring large commercial space…

Liberal relaxation of the floor space index (FSI) paved the way for the agglomeration of several units. The owners of the small units in themselves lacked the resources to attempt these on their own. Enterprising real estate promoters seized the opportunity. They persuaded a cluster of contiguous units to come together, formed a separate entity to build the land size to half an acre and more, and derived the benefit extended to the IT sector in the form of an FSI of 3.75. Mark it, against this, smaller units with land area of less than half acres were entitled to FSI of just 1.5. The promoter took upon himself the task of funding the construction of large IT space to an FSI of 3.45, offered the owner the FSI of 1.5 and retained for himself the balance 2.25. He also took upon himself the task of handling the entire hierarchy of political and administrative channels by liberal speed money. This resulted in a spectacular transformation of Guindy Industrial Estate from the hundreds of small industrial units dotted across to dozens of large multi-storeyed commercial buildings.

This is nothing new: it is just an extension of such enterprise by dozens of promoters of real estate who converted hundreds of Tamil Nadu Housing Board flats in K K Nagar, Anna Nagar and elsewhere built originally to a low FSI of 1, four decades ago, to multi-storeyed buildings with FSI close to 2. In this bargain, they provided the original flat owners much larger sized new flats, plus a few lakh rupees and took upon themselves the funding of the new construction and handling the numerous channels for obtaining the building permit.

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