India’s shining new city in the hills

Lavasa, a planned community being developed 200 kilometres from Mumbai, aims to provide a new urban alternative to India's increasingly crowded cities.

Construction in Lavasa, near the western Maharastrian city of Pune. Lavasa Corporation Limited / AFP
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Follow the winding roads down through the rolling greenery and mist of a picturesque area located about 200 kilometres south of Mumbai, and eventually the beginnings of a new city come into view.

Rows of bright red and yellow homes line the shimmering lake at the base of the hills.

The walkways and landscaping are meticulously maintained and the orderliness of what has been built so far of the new settlement is a far cry from the chaotic scenes found in many Indian cities.

This ambitious project is a 500 billion rupee (Dh28.92bn) planned city called Lavasa, being developed by the engineering and construction giant Hindustan Construction Company (HCC).

Lavasa’s aim is to cater to India’s need for new cities, as the country’s urban areas become increasingly overcrowded – and serve as a model for how India could build future cities.

The master plan for the 10,000- hectare development outlines international tie-ups including a football academy by Manchester City, a Nick Faldo golf academy and a space theme park. At one point there were even plans to have a business school outpost of Oxford University in Lavasa, but these were later scrapped because of what the developer describes as "internal politics" at the university.

Lavasa is projected to eventually be home to 300,000 residents and attract 2 million tourists a year.

“India’s going through a massive economic and demographic and urban change,” says Lavasa’s city manager, Scot Wrighton, who came to the role from a background in local government and city management in the United States.

He explains that huge migration flows from India’s rural areas to its cities are expected over the coming years.

“Indian cities are really not equipped to take that kind of tsunami and so demographically India is a great place to be building new cities. Economically it is, too, because India has a growing middle class with disposable income.”

A detailed report by McKinsey, published in 2010 and based on nearly two years of research, highlighted the challenges that India is facing because of the speed of urbanisation.

“India has barely engaged in national discussion about how to handle this seismic shift in the makeup of the nation,”the report states. “The cost of not paying attention to India’s cities is enormous. Today’s policy vacuum risks worsening urban decay and gridlock, a declining quality of life for citizens, and reluctance among investors to commit resources to India’s urban centres.”

McKinsey says that this could even hurt India’s economic growth rates.

“In a global context, the scale of India’s urbanisation will be immense,” the consultancy said. “By 2008, an estimated 340 million people already lived in urban India, representing nearly 30 per cent of the total population. Over the next 20 years, urban India will create 70 per cent of all new jobs in India and these urban jobs will be twice as productive as equivalent jobs in the rural sector.”

The firm forecasts that the population of India’s cities will rise to 590 million by 2030 from 340 million in 2008. “In short, we will witness over the next 20 years an urban transformation the scale and speed of which has not happened anywhere in the world except in China,” it says.

In Lavasa, the first town, called Dasve, is already nearing completion. As well as hundreds of homes, it has a promenade with several restaurants, a watersports centre, hotels which include an ITC Fortune Select property and one managed by Mercure, part of the French hospitality group Accor. A Novotel hotel is under construction and a modern convention centre is up and running. A hospitality school certified by the Swiss institution Ecole Hôtelière de Lausanne has also opened up in Dasve and retirees have also moved into an upmarket retirement home nearby. Lavasa already has about 1,500 residents, excluding the transient labourers and local villagers.

The large-scale project, however, has faced significant challenges, including a drawn-out court case and work being halted for a year after additional clearances were demanded by the ministry of environment and forests. Although that issue was resolved, the delays pushed back the completion date for the project to 2023 from the original plan to finish it by 2021. Negative press surrounding the battle and concerns about the environmental impact of the project have had a lasting effect.

“Because of the damage done [by the allegations], we have to rebuild our image,” says Mr Wrighton. “That’s a challenge.”

Land acquisition has also increasingly become an issue.

“We have acquired close to 13,000 acres,” Mr Wrighton explains. “It’s getting harder to acquire more. As the project grows in size and profile and value, acquisition of land gets harder because it’s perceived as being more valuable.”

Although property sales are helping to generate revenues, the project’s economic model is that income will come from a variety of sources.

“In the normal township project in India, the revenue stream is only one source – the sale of real estate,” says Mr Wrighton. “When a developer of one of these 100 [or] 200 acre townships – and there’s literally hundreds of them in Pune-Mumbai corridor – when they sell that last lot, they’re gone.

“Our revenue streams are really three parts. We do sell real estate, too. At some point in the future that revenue stream will decrease. So our business plan provides for two other revenue streams – the city management services fees and the operating revenue that comes from all these different joint ventures we’ve invested in.”

Education, tourism, and a variety of businesses are expected to play important roles in the city’s economy.

Houses in the first town are almost completely sold out and sales are under way for the second town, on which construction work has started, according to the developer. But the slowdown in India’s economy is taking its toll.

“The kind of buoyancy that the market had displayed three or four years back is not the buoyancy any real estate player is seeing today,” says Anuradha Paraskar, the senior vice president of marketing and sales at Lavasa.

But she explains that this is in part being compensated for by a surge in interest from non-resident Indians, particularly from the Arabian Gulf, who are looking to take advantage of the weak rupee. Apartments that were launched at 2,400 rupees per square foot in 2007 are now selling at about 4,500 rupees per sq ft, she adds.

Lavasa had planned for a public stock offering, which was put on hold because of the clearance issues and then weak economic conditions. Those plans willbe revisited “as and when the market conditions are right”, according to a company official.

Analysts note that such projects could be well worth the hurdles, risks, and costs that they face.

“Although building new cities is generally more expensive (on a per capita basis) than renewing existing cities, such an effort will act as a benchmark and a model for well-planned, environmentally sustainable world-class cities while helping ease some of the strains of urbanisation,” according to McKinsey.