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With our leap into a lower middle income country status globally, the middle class is bursting at the seams. Its most striking manifestations are a fast-moving urbanisation noticeable in hitherto un-urbanised peripheries and the signs of a rampant commercialisation which is best seen in the television channels and the splurge of shops and supermarkets
By Susil Sirivardana
In the country’s housing history, there is one strategic element missing. That is the private developer who is designing and building for the rudimentary or service sector-derived upwardly mobile middle class.
As the pieces of the jigsaw stand today, there are developers servicing the needs of upmarket clients and the upper middle levels. But there is no one even thinking of organising themselves for a huge segment of the housing market – which means potential profits – for this large and important segment.
This article is written as an expose to help focus attention of the Infrastructure Summit’s Urban Housing session on this important gap in the housing market. My hope is that it helps catalyse an action-response, beyond the mere casual swapping of ideas. Here is an opportunity to catalyse thought and discussion into actual action on the ground. Will there be takers or will the problem persist into the future?
This gap in the market defies logic. With our leap into a lower middle income country status globally, the middle class is bursting at the seams. Its most striking manifestations are a fast-moving urbanisation noticeable in hitherto un-urbanised peripheries and the signs of a rampant commercialisation which is best seen in the television channels and the splurge of shops and supermarkets.
The service sector is expanding the fastest and this particular segment of housing consumers are employees of this sector. They are eagerly looking for a means of housing themselves, within affordable limits, and without unnecessarily falling into debt. This is a conventional phenomenon in developing countries throughout the world.
Our regional neighbours in countries like India, Malaysia and Thailand are dotted with mass-scale, private developer built, housing schemes, usually within commuting distance of fast-growing towns, catering to the gamut of affordability groups. But this visual-scoop is absent here.
An equally striking feature of this same pressing process is the outpouring of flats and high rises, once again in Colombo, its suburbs and peripheral towns. Many important issues of maintenance and sustainability affect these complexes. They are certainly beyond the realm of taking for granted.
A moot question to ask would be, if that is the case, how has this market segment been satisfying their housing needs so far in the market? The answer lies in the phenomenon called land sales agencies who have been around for some decades.
They have been practicing a process of marketing housing plots, by buying up blocks of agricultural land cheaply, using a method of mechanically surveying blocks for sale in grid fashion, and selling them off to the land hungry middle incomers, who buy them and wait for some more years, before actually starting to build. And when they do start building, they follow the conventionally practiced incremental process of adding spaces to the original starting space.
This method is a quick and dirty method which has served the purpose but it has many drawbacks in terms of desirable development, efficient service provision, and environmental conservation. Over time, it creates many environmental issues and costs for the residents and the local authorities.
Another point noting in this context is that after Pieter Keuneman’s Land Ceiling Regulatory laws, rental housing, which was significant in Colombo and other urban areas, completely dried up. The prospective builders and renters perceived this legislation to be anti-developmental from their point of view.
The time is now overripe for this issue to be revisited in terms of policy, and for this market segment also to be explored and be brought back into the centre stage of debate as one of the housing options available for the country. Given the proper tax and other state incentives, there will be entrepreneurs who will restart a process of rental housing for the middle incomer.
What about exceptions to the rule? Do they exist? Indeed they do, but very little is known of their existence because they fall into a category of their own, of being silent organised community developers, who prefer to do their work with a minimum of publicity. It is time that the Sri Lankans become aware of their achievement.
The chief organisations are the Women’s Bank located in Seevalipura, Jana Rukula headquartered in Gampaha and NGOs like the Women’s Development Federation of Hambantota and others of their ilk. The only large-scale organisation outside this category, is the Gampaha Development Cooperation, which is the Gampaha District arm of the thrift and cooperative credit movement.
We should acknowledge the pioneering role they have played silently, by innovating and mobilising the savings of mainly women, and developing a solid organisational mechanism to keep their funds secure, audited and up to date, with repayments of 100%. They form an integral part of a large Asian Network of community-based savings and credit societies, which have proved to be extremely popular and treasured by their members.
By the way, they have a history of over 20 years on the ground. They are children of President Premadasa’s pro-poor thinking which mainstreamed in the country with the Million Houses Programme first, and later, Janasaviya.
However the point about these worthy pioneers is that they are a niche segment. What we are talking about is a robust market entity that is private sector-led and serving the respective market segment in much larger numbers. It is in the scale and the numbers that the profits lie.
The secret of the implied business model is to invest in large turnovers where though the unit profits are small, the aggregate profits when added up, are considerable. When combined with various cost-effective new building technologies, this strategy has found much favour in the Asian region.
The question I am provoked to ask after this short exposition of a problem in the housing market in the form of an unfilled market gap – called here ‘The Missing Private Developer’ – is, where are the catalysts for this phenomenon to be born and entrenched? Where is the presence and voice of NERD Centre whose mission is low-cost technology innovation?
Private sector initiatives are born of the function of catalysts who flag opportunities, offer incentives, uncover unseen opportunities to the entrepreneurs looking for investments. Such catalysts are the risk takers who cut open paths and reveal the potential.
I see the Infrastructure Summit as an appropriate forum to raise questions like this and to arrive at tentative answers, which must be followed up after the conference. It is only then that the Summit would have laid a productive egg so to say, which will add meaning to the development the nation seeks.
