Alacrity Housing - Ethics First

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"Unfortunately today, the phrase ethics in real estate may often qualify as just such an incongruity. Billions of dollars and many decades of formal and informal training have made commercial real estate practitioners better salesmen and more effective deal makers, but relatively little time, attention or dollars have been invested in making ethics in real estate a less contradictory phrase."

- Riis Christensen in 'Ethics in Real Estate: an Oxymoron?'¹

"Almost every (government) department that we interact with has stopped asking for tips or bribes from Alacrity. In fact, we have witnessed the delightful experience of an old hand of the department telling a new one - Why waste your breath, they are misers - you won't get a paisa from them!"

- Amol Karnad, Chairman, Alacrity Foundations.

Alacrity Housing - Ethics First: Unethical Practices in the Indian Housing Industry

In India, the housing and construction sector accounted for about 40-50% of the capital expenditure on infrastructure projects in a year. The sector contributed significantly to the economy, enhancing GDP, increasing income and generating employment. The construction activity accounted for about 50% of the development outlay in India. Till the late 1980s, the housing and construction sector was not given the status of an industry. The sector required a scientific approach for the management of materials, machines, manpower and money, and general management discipline to become organized and get the status of an industry. With the formulation of the National Housing Policy (NHP) in 1989-1990,2 the construction business started to be recognized as an industry. In addition, the government lost its monopoly status in the industry; instead, it now became a facilitator and monitor of the industry. Soon after the NHP was announced, the industry grew alarmed at the unethical practices followed by many people in the industry. Because of this unethical behavior, there was crisis of confidence between the supplier and the consumer.

The unprofessional and unethical practices covered a whole range of activities in the industry. These included illegal, unauthorized and unsafe constructions; black money transactions; time and cost overruns; exploitative profit margins etc. Bribery was common in the industry since many corrupt government officials demanded huge amounts for issuing permits and clearances for drainage, water and electricity connections, and no-objection certificates etc.

Time and cost overruns were also very common. The builders never seemed to give possession of the flat/house on time. The price too, was never the same as agreed on initially and increased substantially due to the project cost overrun. Laborers were exploited and not paid even minimum wages. There was also discrimination against women.

In addition, black money transactions were common in the industry. No contractor or builder objected to this practice. The underworld was also involved in the construction industry. Builders sought the help of the underworld to remove encroachments on the plots they were going to develop. In return, the underworld demanded huge sums of money.

To self regulate the industry and weed out corruption, the National Real Estate Development Council (NAREDCO) was established in 1998. To improve the confidence level of investors and consumers in the real estate sector, NAREDCO took measures to improve transparency in real estate transactions. It represented all enterprises dealing with various aspects of real estate development including land development; lay-out; planning; construction of residential; commercial and institutional buildings/complexes; development of townships; provision of urban infrastructure (roads, electricity, drainage, sewerage, water supply) and social infrastructure (recreational, educational and medical facilities); architecture; town planning; supply of building materials; estate finance insurance; and estate marketing and brokerage; and other allied fields. A Code of Ethics was developed (Refer Exhibit I). NAREDCO also developed a rating system in association with CRISIL³ to facilitate prudent investment decisions in real estate ventures.

Even though unethical and corrupt behavior was common in the housing and construction industry, one company - Alacrity Housing believed that it paid to run an honest business. The company strongly opposed to the unethical behavior so common in the industry. It did not believe in giving bribes or dealing in black money. Analysts doubted that such a company could survive for long in a corrupt business environment.

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1] Posted on dallas.bizjournals.com on January 25, 2002.
2] The NHP was announced in 1988. The long term goal of the NHP was to improve the housing conditions of the inadequately housed and provide a minimum level of basic services and amenities to all.
3] Credit Rating and Information Services of India Limited, established in 1987is the pioneer rating agency in India established in 1987.