Archive by category "Policy/Procedural"

How new FDI norms can help transform India’s Real Estate Industry

The recent announcement by the government relaxing foreign direct investment norms for Indian construction and real estate sector comes as a shot in the arm for builders and developers. Though FDI in real estate has been allowed since 2005, the rules and regulations related to the size of investment, lock-in period and exit routes had so far restricted the free flow of capital.

Over the past few years, the flow of FDI in India’s real estate has been on a decline. During the current fiscal year until August, India received FDI inflows worth $17.4 billion, which is 70% of the total inflows received during the entire fiscal year of 2013-14. However, FDI inflows received by the construction, housing and real estate segment have lagged behind. The new rules aim to rectify this anomaly by creating appropriate investment architecture for attracting FDI.

The easing of FDI norms is therefore significant as it will provide an alternative route of funding for projects in construction and real estate development. These being very capital intensive activities, relaxing the FDI norms will help the players to address issues of liquidity constraints, which have posed a major challenge for even some of the leading developers.

In particular, the decision to reduce the minimum built-up area requirement for FDI in construction projects to 20,000 sq. meters from 50,000 sq. meters and lowering the need for minimum capital requirement to $5 million from $10 million will allow many projects to qualify for FDI through automatic route (no FIPB clearance will be required). The sectoral conditions of minimum area and capital will not apply if the developer sets aside 30% of the project for affordable housing, defined as dwelling units of less than 60 sq. m.

Among the other investor-friendly decisions are removal of the clause stipulating a minimum land requirement of 10 hectares for development of serviced plots; allowing an investor to bring in successive tranches of FDI till the period of ten years from the commencement of the project or before its completion; permitting foreign investors to repatriate investments and exit on completion of the project after three years. In this regard the modalities related to the date of final investment and the guidelines on development of trunk infrastructure are under consideration and formalization.

By creating an enabling regulatory framework for FDI to operate seamlessly in Indian real estate, the sector stands a good chance of experiencing a transformation through the introduction of global best practices into the system and more efficient, transparent and time-bound processes.

Among the key benefits to accrue from greater FDI in the sector would be an increase in the available housing stock, including affordable housing, and the development of smart cities as envisaged by the government. Under the new rules, developers will be encouraged to take up smaller projects in urban areas where the availability of land is limited. With FDI funding at their disposal, the risk of delay in smaller projects will be reduced leading to their fast and cost-effective completion, which would further advance the government’s vision of ‘Housing for all by 2022’.

Studies show that FDI triggers technology spillovers, assists human capital formation and contributes to creating a more competitive business environment and efficient use of resources. All of these are important factors to be harnessed for development of smart cities in India. By facilitating the introduction of new technology and know-how, FDI in Indian construction and real estate sector can help spread the adoption of “cleaner” and “greener” technologies for improving environmental and social conditions within the industry and among urban communities.

All of these developments would become catalysts for higher economic growth, which is the most potent tool for alleviating poverty and generating jobs. Apart from infrastructure creation, substantial employment and income generation over the entire spectrum from unskilled workers to engineers, architects, designers as well as financial and other supporting services, investments in the sector also create demand for products in related industries like cement and steel.

PPP as a tool for promoting Affordable Housing

The public-private partnership model in India has attracted huge private sector investments in sectors like Roads and Highways, Railways, Power, and Urban infrastructure. With investment in infrastructure expected to double to US $ 1 trillion during the Twelfth Five Year Plan (2012-17), the PPP story in India’s infrastructure development will be of major consequence. About half of the targeted investment in the 12th Plan is to be achieved through private sector investment.

Still, there exists a huge untapped potential for PPPs in real estate projects in the mass housing space. Currently, the housing shortage in the country is to the tune of about six crore units with the level of annual investments in the housing sector being about USD 110 to 120 billion at present. India would require about 11 crore housing units on a pan India basis by 2022 to achieve the government’s vision of “housing for all”.

To meet this ambitious housing agenda, investments of more than USD 2 trillion or about USD 250 to 260 billion annual investment until 2022 would be required. About 85 to 90 per cent of the total investments needed to fulfil the country’s housing agenda would go into developing urban housing, where development costs are high due to factors such as land prices, construction cost, fees, and taxes.

Mobilisation of such huge resources (funding, construction capacity, labour, technology, etc.) for mass scale affordable housing development by the central and state governments may be difficult, without participation from the private sector. Though PPP projects can play an important role in bridging the gap between the housing need and supply and can be instrumental in attracting private capital for financially viable affordable housing projects, some important issues need to be addressed first.

To make the PPP model successful in the mass housing segment, the government would need to address several structural issues first. These include liberalising urban planning process, providing access to adequate funding sources for private players, putting in place a mechanism for quick clearances of licences and approvals so that cost overruns and project delays can be minimised.

The PPP framework can be effectively used to address important issues in housing development such as land availability, approval delays, funding, and affordability by the poor. Among the more obvious advantages of the PPP model in affordable housing are:

• Easier land acquisition and consolidation – It is estimated that to meet the needs of urban housing, about 1.7 to 2.0 lakh hectare of land would be required till 2022. Expedited and easier land acquisition, made possible by the public sector, could enable reduction in project lifecycle and project costs. The central and state governments should provide the land acquired, at competitive prices to the private sector, which is often better in term of managing construction risks and project delivery. A deep analysis of these PPP policies in housing reveals that a PPP policy should aim at aggregating land for housing development, while the private sector should focus on managing operation risks (construction and finance). Land cost, which is anywhere between 20 to 60 per cent of total project cost (depending on project location), and lack formal funding channels for land acquisition (both debt and foreign equity), are major bottlenecks restricting overall housing development in the country.

• Faster Regulatory approvals – Issues relating to project implementation, monitoring and dispute resolution are among the key concerns of the developers. PPP mechanism can help ensure timely clearances of regulatory approvals, which can reduces the risk of cost and schedule overruns.

• Improved financing — A joint pool of private and public funds may be more effective and efficient in financing housing projects. Further, a PPP project with government guarantee may help secure lending from institutional lenders at lower cost.

• Improved affordability – With some relief on stamp duty and development fees, and tie-up with banking institutions, the affordability of houses by EWS/LIG sections could be improved.

For instance, to encourage PPP in affordable housing space, Rajasthan has drastically reduced the stamp duty in the case of EWS/LIG houses from 8% to mere Rs.10 in the case of EWS and Rs.25 in the case of LIGH. As a result, so far, over 75,000 houses (60% of budgeted target) for EWS / LIG groups have been delivered through PPP in locations such as Global city, Neemrana, Greater Bhiwadi and New Jaipur.

States like Haryana and Tamil Nadu have made good use of transferable development rights and a liberalised FSI approach to encourage PPP in the affordable housing sector. In fact, Tamil Nadu offers 50 percent extra FSI for projects targeting EWS in Chennai Metropolitan Area and 30 percent extra FSI for projects targeting MIG. Haryana has a proposal to increase the density norms from 300 persons per acre to 900 persons per acre, allowing developers to increase the maximum number of units per acre from 60 to 180. Cities like Delhi and Ahmedabad have drafted Township Development Schemes or Land Pooling Policy (type of PPP models) to encourage affordable housing developments through PPP route.

Going forward, it will be possible to motivate more private developers to take up construction of affordable housing in various urban centers of the country if the authorities can offer an enabling policy framework and in-built incentives.

Retooling PPP for sustainable Infrastructure Development

The Infrastructure story in India took off in right earnest about 20 years ago with the National Highways Authority of India adopting the public-private partnership model for the development of highways. Till date, over 240 highway projects have been implemented by the NHAI through the PPP route, despite the exit of a few private developers from PPP projects in recent years. The popularity of public-private partnerships in the delivery of public services continues to grow and spread. In recent years, the demand for infrastructure has grown phenomenally making it difficult for the public sector and government agencies to fund big projects by themselves. It has therefore become increasingly common for the public sector to look up to the private sector to provide financial resources, innovation, and technical expertise through the enabling framework of a PPP contract. Out of the proposed allocation of Rs. 51 lakh crore towards infrastructure investment during the 12th Plan period (2012-17), 47% is expected to come from the private sector.

According to a World Bank report, India ranks as the largest market for PPP in the developing world. Currently, there are over 900 PPP projects in various stages of development. These projects are spread over various sectors such as power, water, health, education, energy, roadways, railways, airports, ports, tourism and urban development.

Private enterprises have developed metro airports in Bangalore, Hyderabad, Delhi and Mumbai. The concessions for the operation of container trains have been awarded under PPP. New milestones have been reached with different forms of PPP implementation – turning minor ports into major revenue sources, such as in the State of Gujarat. Budget 2014 has given a further fillip to PPP projects by announcing new infrastructure projects on a mega scale. Among the most prominent is the 15,000 km gas pipeline. The most promising initiative in terms of boosting infrastructure development has been to allocate Rs. 500 crore for 3P India, a new institution tasked with the responsibility of refurbishing the PPP model.

Planners and development experts agree that PPPs can bring about constructive and productive partnership between the public and private sectors, which can be particularly useful and beneficial for developing infrastructure. For instance, India’s largest public sector behemoth, Indian Railways, which needs huge capital investments to finance bulk of its future projects such as high-speed rail and more freight corridors, is looking to raise substantial resources through the PPP route. Disclosing that the government needs more than Rs.9 lakh crore to complete the Golden Quadrilateral Network and another Rs 60,000 crore to introduce one bullet train alone, railway minsiter DV Sadananda Gowda, while presenting the railway budget in Parliament asked the House, “Can I depend only on hiking fares and freight rates and burden the public to realise these funds? This is unrealistic. I need to explore alternate means of resource mobilisation.”

As per a report (India’s urban awakening) by McKinsey Global Institute (MGI), India needs to invest $ 1.2 trillion over the next 20 years to modernize urban infrastructure and keep pace with the speed of urbanization. The need to upgrade India’s infrastructure is especially acute in its huge cities with the urban population projected to reach 500 million by 2017 from 377 million, according to the 2011 Census. Projects such as mass transit systems, better rail connectivity, industrial corridors, smart cities, highways and expressways, energy investments, new airports, etc, will be needed to uplift the quality of living for people in the city and regions around it. It requires government and industry stakeholders to come together to promote and encourage PPP models as a way to financing and delivering capital projects more efficiently and effectively.

Successful PPP models not only create long term infrastructure for public use, they help to earn decent returns for investors while begetting revenue share for the government, which also stands to gain from ownership of assets at the end of the concession period.

Strengthening our institutional mechanisms for PPP is a pre-requisite to its successful implementation and the recent initiatives will help the PPP model to become more robust. As PPP models are complex structures, care has to be taken that we structure and design PPP projects in a way that helps to improve transparency, creates investment incentives and allows for expertise to develop and negotiate complicated contracts. To make the best use of the opportunities PPP offers for sustainable infrastructure development, we must focus on improving the transparency and the accountability of the projects. In this context, it is important to analyse the projects well before tendering. Global experience and PPP best practices have established that highly competitive outcomes can be achieved with 3-4 competent bidders.

At the same time there is an urgent need to modify our approach to the planning, bidding and execution of infrastructure projects, and how we approach issues of infrastructure maintenance, management and operation. To begin with, the interests of “owners” and “contractors” should be aligned in PPP projects. The focus should be on optimising the total lifecycle costs instead of only the up-front costs. It therefore becomes all the more necessary to adopt the right contractual structure and allocate risks fairly.

Acting on these fronts will ensure that partnerships for infrastructure development yield the expected fruits – for the investment partners and for the communities supposed to benefit from them. We hope that the new government, with its emphasis on establishing a climate of lasting trust and real partnership, will be able to make PPP an effective instrument for serving the wider public good. At a time when people are looking up to the government to deliver on the huge expectations it has helped to build, PPPs can be the right medium for improving the lives of the people through more inclusive and sustainable development partnerships.

Leveraging REITs for Affordable Housing

Most of India’s housing deficit is in the affordable residential segment. Affordable housing in India ranges from 250-650 square feet (one or two bedroom set) and typically costs between USD 8,000-17,000 per unit. Considering an average housing size of 400 square feet, India requires about 15-18 billion square feet of development in this segment alone. As per the report of the Technical Group on Urban Housing Shortage (2012-17), Urban India is in need of 18.78 million dwelling units out of which nearly 96% belongs to the Economically Weaker Sections (EWS) and Lower Income Group (LIG) Households. These two income groups are expected to account for 85-90 per cent of the total residential development (number of housing units) i.e. about 40-45 million housing units by 2028.

Scarcity of affordable housing in Urban India and the existence of a wide gap between the demand and supply of housing, both in terms of quantity and quality, have created a plethora of problems, including the proliferation of slums. As per the National Sample Survey Organization, one-eighth of India’s urban population currently lives in slums. The deteriorating condition of the urban poor in major Indian cities is a disconcerting theme in the country’s urban revolution. More than 300 million persons are expected to be added to India’s working age population by the year 2050. According to UN estimates, India has the highest rate of change of urban population among the BRIC nations. An estimated 843 million people will live in Indian cities by the year 2050, which is about the same as the combined population of the US, Brazil, Russia, Japan and Germany.

Needless to say, the need for providing housing/accommodation facilities in our cities will become even more acute in the years ahead. It has therefore become a matter of great concern and urgency that our policymaking and government thrust is geared towards solving the country’s housing needs, especially in the affordable segment. Taking cognizance of this grave situation, the draft Model State Affordable Housing Policy for Urban Areas issued by the Ministry of Housing and Urban Poverty Alleviation calls upon state governments to establish linkages and bring convergence with the various fiscal initiatives provided by the Government of India for Affordable Housing projects such as Foreign Direct Investment, External Commercial Borrowings, Urban Housing Fund Refinance Scheme, Real Estate Mutual Funds, Real Estate Investment Trusts, etc.

Over the past few months, the new BJP government at the centre has moved ahead and set the ball rolling on quite a few of the above stated fronts. The government has announced that it is committed to providing “housing for all” by 2022. It has acted swiftly to further liberalize FDI in the construction sector and has granted greater leverage to Indian companies in tapping commercial borrowing from overseas. The recent notification of REITs – a vehicle that has played an important role in financing real estate industry in the US, Australia, Singapore, Hong Kong, and several other countries – by the Securities and Exchange Board of India, is expected to bring the country closer to finding the right solutions in providing affordable housing to large swathes of the Indian population.

However, for the time being, the REIT norms notified by SEBI don’t talk about its possible role in the affordable housing space. The focus of REITs for now would be on commercial and retail property. Leveraging REITs in affordable housing would require the creation of residential or housing REITs, which is not on the horizon currently. But one can expect many changes to the REITs regime going ahead, including those that could help address the issue of affordable housing in the country.

In mature markets such as the US and UK, where REITs have been operating for many years now, governments have shown a keen interest in exploring how this model could be used to attract investment into the residential sector, particularly for social and affordable housing. According to a report by Mazars, an advisory firm in UK, REITs have a vital role in funding the social housing schemes. Policymakers in the UK have been focusing on this model to facilitate an increase in the supply of social and affordable housing across the country.

Typically, housing REITs acquire, renovate, lease and manage residential properties located in markets to generate rental income. As REITs cannot invest in under-construction property but only in those with regular income, they hold properties over the long term and generate virtually all revenue by leasing the properties. This revenue is used to pay for operating costs and distribute dividends among shareholders. For instance, a type of housing REIT known as apartment REITs own a portfolio of rental apartment properties, which may be large residential properties such as mid-rise and high-rise buildings, student housing, senior housing or social housing.

On the other hand, REITs provide the sponsor (usually a developer or a private equity fund) avenues of exit thus providing liquidity and enable them to invest in other projects. The vehicle’s potential for generating liquidity is being harnessed across the world to securitize rental-housing units owned by government bodies and to help finance affordable housing by attracting private sector investment.

The potential of REITs to securitize government-owned rental housing and raise fund to finance new constructions of new affordable rental housing is something that the government in India can well make good use of. Government bodies and agencies in India hold a lot of public housing property worth billions of rupees. But the lack of liquidity has made these agencies stuck with holding properties, and reduced their ability to build more public housing for low and medium income groups employed in the government sector.

In fact, the government can move beyond public housing for its employees to leverage REITs for creating a public-private partnership for the development, funding and management of affordable housing for the public. Countries like the US and Hong Kong have made significant progress in affordable housing by creating appropriate REIT structures. In the US, REITs has had a long history of involvement in affordable housing. As far back as in the 1950s, a REIT called The Mutual Real Estate Investment Trust (M-REIT), started by Morris Milgram, began to build communities, which were both economically and racially integrated. The objective of M-REIT was to invest in income-producing real estate in good neighborhoods and offer housing to all.

Milgram realized in 1946 that there was an unwritten law in the US that all new housing and almost all decent housing was for whites only. He then decided to build integrated housing for all. The first integrated community, Concord Park Homes, was built in 1954 and buildings there were sold to both the white and the black. This project and the followings were successful and able to pay 7% a year to investors. Other than development, M-REIT also managed economically integrated buildings. Its first project had more than 300 apartments, with rents that range from $26 to $41 a room.

Like the countries that have successfully leveraged the REIT model to promote affordable housing, India too can tailor the REIT’s regime to unlock its potential and attract investment in the housing sector. However, due to the lower returns from social and intermediate housing, the country will need to develop a suitable model that is attractive enough to encourage investors. Lessons from other countries suggest that REIT models can be used to develop a strong rental market in affordable housing.

As land cost in India is inordinately high, buying a property becomes an unviable affair for many. Creating a strong rental market in affordable housing is therefore essential for not just making accommodation available to low and mid income groups but also for attracting REITs in this space. Affordable housing that guarantees a stable and steady cash flow to REITs not only makes it a low risk business but would also help to attract the interest of institutional investors in the sector. As demand of affordable housing in the country is huge, the vacancy rate is bound to be very low. That is to say affordable housing has a relatively lower risk than other property types, making it a low risk investment tool for pension funds and insurance companies.

But to attract participation of the private sector in affordable housing REITs, government should subsidize the development and holding of affordable housing. Experience from the US tells us of the key role that the policies of government played in attracting REITs into affordable housing. The active participation of REITs happened during the period when Section 8 Program and LIHTC Program were largely used. While Section 8 Program helps the holding of affordable housing through rent subsidy, LIHTC Program helps the development of affordable housing through subsidy of tax waiving.

It is therefore not too much to ask the government to step in with incentives and appropriate policies that would make affordable housing attractive to REITs. As in the US, India can look at providing rental subsidies by way of tax credits and incentives so that REITs are able to tap into affordable housing for providing stable income with little risk of losing tenants. To help REITs enter and build the market for affordable housing, government should also design long-term policies that encourage building affordable housing by the private sector. This is especially important because REITs are only a way to help liquefy properties, but have limited power in attracting private sector participation without the advantages of policies. Therefore, government should keep in mind that REITs still need policy supports to play a real active role in affordable housing.

REITs: Reading between the Lines

Recently, after much deliberation and consultation, the formal notification outlining the basic rules for setting up real estate investment trusts was issued by the Securities and Exchange Board of India. All REIT schemes, to begin with, will be close-ended real estate investment schemes that will invest in property with the aim of providing returns to unit holders. The returns will be derived mainly from rental income or capital gains from real estate.

REITs will be allowed to invest in commercial real estate assets, either directly or through special purpose vehicles. In SPVs, a REIT must have a controlling interest of at least 50% of the share capital and will have to hold at least 80% of their assets directly in properties. REITs will be allowed to raise funds only through an initial offering and units of REITs have to be mandatorily listed on a stock exchange, similar to initial public offering and listing for equity shares.

A REIT will be required to have assets worth at least Rs.500 crore at the time of an initial offer and the minimum issue size has to be Rs.250 crore. The minimum subscription size for units of a REIT on offer will be Rs.2 lakh and at least 25% of the units have to be offered to the public. Subsequently, REITs can raise money through follow-on offers, rights issues or qualified institutional placements and the trading lot for such units will be Rs.1 lakh.

According to the norms, although a REIT may raise funds from any type of investors, resident or foreign, initially only wealthy individuals and institutions will be allowed to subscribe to REIT unit offers. The market regulator said a REIT may have up to three sponsors, with each holding at least 5% and collectively holding at least 25% for a period of at least three years from the date of listing. Subsequently, the sponsors’ combined holding has to be at least 15% throughout the life of the REIT.

To ensure that REITs generate continuous returns, Sebi has said at least 80% of the REIT’s assets have to be invested in completed and revenue generating properties. And only up to 20% of assets can be invested in properties that are being developed, mortgage-backed securities, debt of companies in the real estate sector, equity shares of listed companies that derive at least 75% of their income from real estate, government securities, or money market instruments. No REIT can invest more than 10% in properties that are under construction.

Further, every REIT has to invest at least in two projects, with a maximum of 60% of assets going towards one project. All REITs have to distribute at least 90% of their net distributable cash flows to the investors. To ensure transparency, Sebi has made it mandatory for every REIT to undergo yearly valuation and declare its net asset values within 15 days of the exercise.

The introduction of REITs will make India’s real estate market more institutionalized and transparent while also making it more attractive for developers as well as local and foreign investors by bringing in long-term domestic and foreign capital flows. With REITs regulations coming into force, investors have much to look forward to in terms of transparent pricing, which will be a refreshing change from pricing based on speculation. As a new source of finance and income, REITs will benefit developers to own and manage assets with a long-term view as well as monetize their assets and use the funds to complete their cash starved projects. Retail investors will be incentivized to diversify their portfolio and benefit from regular income and capital appreciation of real estate. It is also expected to provide impetus for fresh boom in construction, which will help absorb labour migrating from the farm sector and boost the economy.

The operationalization of REITs holds out several promises such as:

1. Give developers easier access to funds and create a new investment avenue for institutions and high net-worth individuals, and eventually ordinary investors. The introduction of REITs will provide a new source of cash to Indian developers while giving investors the ability to buy into the country’s property market.

2. Creation of new investment channels in the real estate and infrastructure sector. REITs will reduce the cost of business for both local and foreign investors. It will help ease liquidity for developers and provide access to retail investors to benefit from regular income and appreciation from real estate.

3. If done properly, REITs will change the landscape as it happened in 2005, when foreign direct investment was allowed. Now, we can hope to see sovereign funds coming in.

5. REITs may help unlock as much as $20 billion of listings. Assets that may qualify to be included in REITs may reach $20 billion by 2020, according to an estimate by property consultancy Cushman & Wakefield. In the first three to five years, as much as $12 billion could be raised.

6. REITs will help to inject transparency at least in the commercial sector, lower the reliance on financing from banks, and incentivize developers to own and manage assets with a long-term view.

7. It will encourage investors to pool their money to buy real estate such as shopping malls, office buildings and rental housing.

8. REITs will help India’s real estate market become more institutionalized.

9. It will help free up capacity for a new construction boom which will give a boost to India’s economy.

Smart cities will bring sustainable urbanization and fix urban imbalances

Increasing urbanization has exacerbated numerous problems in our metro cities today. These include proliferation of slums, air pollution, water & energy shortages, traffic congestion, inadequate capacity for treating waste water and sewage, and erratic disposal of industrial waste.

These challenges are likely to become more pronounced over the years as the pace and scale of India’s urbanization grows in magnitude. Migration to urban India is set to rise exponentially as youths head to cities in search of job opportunities. According to a McKinsey report, India will have 68 cities with populations of more than 1 million, 13 cities with more than 4 million people, and 6 megacities with populations of 10 million or more, at least two of which (Mumbai and Delhi) will be among the five largest cities in the world by 2030. The report says that life for the average city dweller in India would become a lot tougher. Water supply for the average citizen could drop from an average of 105 liters to only 65 liters a day with a large section having no access to potable water at all. India’s cities could leave between 70 to 80 percent of sewage untreated. While private car ownership would increase, shortcomings in the transportation infrastructure have the potential to create urban gridlock. All these problems will only cause greater deterioration in the health of people, and can be linked to global warming and escalation in energy costs. In the face of such looming crisis, pressure is building up for our urban planners, local government policymakers and politicians to come up with sustainable solutions to urban development.

Over the last few years, the concept of smart cities has been gaining ground in India, especially with reference to the seven new cities that are planned to be developed along the Delhi-Mumbai industrial corridor. These cities will use smart technologies with a total investment of $90 billion over a decade. The Union Budget of 2014 has earmarked 100 new smart cities to meet the demands of growing urbanization.

The concept of smart city is evolving, its essential framework comprise features like optimum use of energy and resources with the help of Smart Grids, energy-efficient green buildings, environment-friendly and efficient multi-modal transport network, low carbon use, clean technology and smart governance. Homes in smart cities will be linked together through the internet to essential utilities like gas, water and electricity via a Smart Grid. With its help utility providers will be able to forecast demands for various services more precisely leading to better management and delivery.

Smart cities will, with the help of super-fast optical fibre networks and digital technology, will virtually talk to us, sharing information so that communities can become superefficient, and people can be linked to each other and to civic facilities in real time. It is through interconnecting buildings, factories, vehicles, power generation plants, lighting, that cities will be “smart”.

Smart city features will offer a refreshing change to the prevalent conditions in cities today where various elements, such as transportation, energy and power systems, water supply and other utilities operate in silos with no connectivity. To make urban life efficient, livable and sustainable, a defining feature of these new cities will be their focus on clean and renewable energy and an integrated transport system that would seamlessly bring together the different modes of mobility — rail, automotive, bicycle and walking — into one convenient, accessible, time efficient, affordable, safe and green system. People living and working in these cities will enjoy a much superior quality of life than what our established cities have to offer. Residents of smart cities will have access to transportation systems that would be efficient, environmentally friendly and be able to move hundreds to thousands of people quickly, comfortably and affordably to their destinations.

As a result, unlike our existing big cities that are bursting at their seams with people living in overcrowded dense spaces and having to bear the brunt of myriad infrastructure challenges and unplanned urban expansion, smart cities can be catalysts for change and usher in new paradigms in urban living.

Investing in smart cities makes good economic and political sense for the government and its planning bodies. Smart cities can help the government meet its objectives of higher economic growth, job creation, infrastructure investment and urbanization. Also, with the bulk of the population getting priced out of affordable real estate within the existing cities, these new cities will shape up as attractive destinations for housing, employment and industrial development.