The big difference between this model and that followed by most developers today is that land is treated as inventory and not as an asset. Typically builders try to buy land cheap and hoard it till the price appreciates after which they extract a higher price from home buyers. The short point is that most developers today are trying to make money from the land rather than the project. Since they believe land prices will appreciate, they are in no hurry to complete their projects--they divert money received from customers for one project to some other venture and there's no accountability, whatsoever, when it comes to completing projects on time. Of course, they stand to profit enormously from the price appreciation--operating profit margins for leading developers have been upwards of 60 per cent before the downturn began. And if the debt blows up in their faces, there is always the government to bail them out! It's time developers were asked to house each project in an SPV, as will be the case with Rao's venture, so that the money can be kept track of.

For sure, there are a couple of risks to Rao's model. The first is that given the relatively low selling price, restricted to between Rs 1,300 and Rs 2,000 a sq ft, the projects necessarily need to be located not just on the outskirts of cities but perhaps way beyond that. Boisar, where Tata Housing's project is coming up for instance, is located 100 km from Mumbai. The question is whether people will be able to commute from these distances, how much time they will spend travelling and how much it will cost them. If people can't get to the place of their work within a reasonable amount of time, they would rather live in a chawl. The response to Tata Housing's Boisar project , however, suggests there's huge pent-up demand at this price point. Whether people are planning to live in Boisar or only move there when they retire, remains to be seen.

Source: Business-standard Biggest Risk Of Jerry Rao's nano-housing dreams is Execution