Real Estate Scenario In India
In 2002, the government of India permitted 100 percent foreign direct investment (FDI) in housing through integrated township development. the merits of FDI are well known – it provide the much needed investment in the sector, brings professional players equipped with real estate expertise and facilities the introduction of new technology. However, the FDI rules in its current from are rather stringent – prior approval of the foreign Investment Promotion Board is required which admittedly can be rather tedious and there is a lock in for repatriation of original capital invested for a period of three years. What is rather self-defeating is the stipulation of a minimum land holding of 100 acres. Getting 100 acres of free land in an urban area is almost impossible and consequently barely a handful of projects have been approved. If the minimum area restriction is reduced at least by half and repatriation of profits after the construction period is completed is allowed , FDI in this sector will certainly pick up. In this aspect, I think we have lot to learn from our Chinese compatriots. Recently, the securities and exchange board of India, India’s capital market regulator has permitted venture capital funds to invest in real estate- the augurs well for the industry. Let us examine the real estate scenario existing in some of the major urban centers in the country namely Mumbai, Hyderabad and Bangalore.
Property Investment in India
The economy in India is surging ahead at a brisk pace. The grown rate in 2003-04 was 6.9% which is second highest among the global emerging markets surpassing all expectations. Indian real estate market is reaping the rewards. Almost 80% of real estate developed is residential and rest is commercial. IT and BPO success story has brought about a situation increasing disposable incomes which has changed the face of real estate in India. Real estate is vital to the country’s infrastructure and economic development. the Indian government has realised this and has taken steps in introducing several reforms and schemes such as facilitating Foreign Direct Investment (FBI) thus allowing further boost I the growth of the Real Estate. This sector has a bright future there is a huge scope for development.
BPO and IT companies do not require prime locations. Suburban locations are reasonable and suited to this. This has led to the development of these areas. Developers are constructing properties with facilities and amenities at par with international standards. Yearly appreciation on commercial real estate market across the Indian metro ranges from 9 to 11%.
Retail market is standard and integral part of the real estate development in India. The entry of the leading retail outlets is a matter of time. Large international retailers like Tesco and Wall Mart. Are working out the strategies to enter into the Indian Market. Average yearly appreciation on the retail real estate ranges from 10 to 13%.
Real estate in this segment too is booming in metros and other cities Suburbs are the focal points due to cost factor thus driving relocation strategies of the companies. developers are building world class integrated township projects with latest facilities and amenities. Easy availability of loans has definitely helped. An individual can avail upto 90% loan amount right from the project commencement stage.
The Mumbai Real Estate is considered the yardstick for the burgeoning Real Estate sector in India. Mumbai is a mature, demand led market where there are many more and users are compared to other speculative markets in the country. There has been an appreciation in real estate value due to increase in demand. The investment is thriving with returns increasing manifolds over past few years.
Currently, the real estate investors are mainly HNFs`, with the relaxation in FBI regulation, institutional money is expected to be following into this sector.
The Mumbai commercial market comprises of the central business district (CDB)- Nariman Point, Fort, Churchgate and Suburban Business District of Bandra-Kurla complex, Andheri (East & West), Powai and Malad. As there is no new supply expected in CDB, companies are looking at Malad, Andheri, Vikhroli and Powai because of state of art buildings available in that area. Higher efficiency and most importantly closer to the manpower pockets have helped. The higher demand in SBD is due to lower lease rentals and better infrastructure. Vacancy rates in CBD will lower little bit due to the rising demand of the quality office space by MNCs. IT/ITES companies continue to move into cheaper locations as real estate supply in CBD of Mumbai is low, expensive and not to as per the specification therefore suburbs like Vikhroli, Vashi and Thane will gain major momentum. the property boom and upsurge in the construction activities in most parts of the city have led to an increase in the investment opportunities in the commercial real estate sector. There has been an appreciation of about 15-35% in values of commercial properties in micro-markets in Mumbai barring a few exceptions. The commercial property rates are expected to rise by around 15-20% because of the mismatch in demand and supply. Rentals in the secondary business districts of Malad, Andheri and Powai have also witnessed upward pressure. Yields on commercial properties have been between 9-11% and are expected to remain at this level.
Mumbai Retail Market
In Mumbai 25 fully functional malls occupying area around 4.5 m sq.ft will be functional by the end of the year 2006. Organised retail development is now shifting towards Western and Central suburbs due to the availability of the land at the affordable rates. Government’s proposed policy to allow the FDI in retail will have strong effect on organised retail developments in terms of construction design, concept, quality safety, amenities and consumers, security and most importantly the post construction mall management. In next 12-14 months foreign brands will be allowed to enter the Indian markets.
Areas such as Thane, Vashi, Lokhandwala, Juhu and BKC will emerge for a new concept called as speciality malls, which cater to a particular product line. Food courts, entertainment, cinema theatres and air-conditioned environment. Encouraged by the enormity, scale, success and scope of development in Parel area some developments are proposed with strong retail base. Yields on the retail property have been around 11-13%.
Mumbai Residential Market
Mumbai residential segment is performing very well in the current scenario. The demand for the quality residential leased apartments in south and south central Mumbai has increased significantly in past one year. The increase in demand in the suburbs is due to availability of easy loans, with limited supply in south Mumbai the shift has been towards North Mumbai. The demand is very high in Bandra for sale and lease apartments but due to quick absorption of these apartments and limited construction activities the shift has been to the joining areas like Santacruz, Khar where newer constructions are coming up also there in these areas few pockets have witnessed noticeable capital appreciation, in last 9-12 months. The lease rentals in Juhu and Lokhandwala are also under continuous upward pressure due to very limited supply and close proximity to excellent social infrastructure, airports, Powai.
A largely supply is coming from western suburbs like Goregaon, Malad, Kandivli while Mulund, Thane, Vikhroli and Chembur belt from the central suburbs.
Availability of vast industrial land provides tremendous scope for planned development that includes quality housing with ample open space, club house, security, etc. middle and upper middle class have shifted to the these areas for the new developments offer better lifestyles to individuals.
Upper and luxury residential apartments are experiencing a strong demand by MNCs for their executives. Supplies in suburbs has been absorbed due to a very high demand, the capital values have shown an increase of bout 15-20010.
Many developers are expected to announce new projects soon. The end user demand in the suburbs is expected to continue to be strong. Rental and capital values in South Mumbai will move upwards due to the short supply. Widening of roads and western express highway will make commuting far comfortable for the residents living in these areas like Goregaon, Malad and Kandivli, they will be able to access Powai, Thane and other central suburbs more conveniently. Thus property prices in these areas will see further 10-15% increase. To sum of the residential market is on upward swing and prices trends will continue to be gently upward.
Yields on residential property in Mumbai have been around 5-7%.
Of late, Hyderabad has witnessed a remarkable growth in real estate business, thanks to a predominantly information technology-driven boom in the 1990s and the retail industry growth over the last few years spurring hectic commercial activity. However, the real estate prices have spiralled only in some hotspots of the city and continue to be flat mainly due to the slowdown witnessed during the last few quarters.
Cushman & Wakefield, real estate trend trackers, had over a period projected a flat growth both in terms of offtake as well as rental value, however, with a few industry segments spurring fresh activity —which include telecom companies, insurance and retail businesses.
For instance, in Hyderabad, there has been spurt in the number of mega malls coming in, this was triggered mainly by two vital developments—-one, the retail business has witnessed a growth despite factors hindering general collective growth, and two, which is of specific importance, is the relatively lower commercial price in the industry in Hyderabad compared to major metros.
To build on to the real estate platform and support from the State Government, earlier this month, the Mumbai-based Raheja’s have signed up with the Andhra Pradesh Government to initiate a Rs 600 crore project, which envisages phased development of modern infrastructure, multiplexes, entertainment-cum-shopping arcade.
Development of specialised IT infrastructure by private players had gained over the last two years after the government kicked off the Hitec city.
This led many developers to tap small and medium sized companies with their projects targeting the growing IT industry.
Simultaneously, some overseas companies have evinced interest in infrastructure development in the state.
A Singapore-based business group – Ascendas, has entered into an agreement with L &T Info city Ltd, to develop modern enclave, which will have a built in space of about 5lakh sq.ft.
To support the office infrastructure with better housing facilities, a host of initiatives are underway in and around the Madhapur region of Hyderabad, where private players have linked up a range of multi-storeyed complexes.
And not to be left behind and to latch on to the emerging business opportunity, the state owned Andhra Pradesh Housing Board, has sign up with two overseas partners—one Malaysian, the other Singapore, to develop integrated townships to meet the real estate demand-supply mis-match.
Malls have become the flavour of the city and have sprouted all over. More and more retail stores both local from across the country are underway.
What started with mega stores such as shoppers stop, lifestyle, pantaloon, lately Giant, MPM mall, has led to a chain reaction with more projects cropping up.
In addition to these new malls – Tirumala music centre and stanza – have come up and more are in the pipeline.
Infact, a Dubai-based firm has evinced interest in developing a shopping arcade, on the lines of those developed in Dubai.
Even as more such projects get lined up, the real estate biz in Hyderabad is in for exciting times.
The real estate industry has a huge potential for growth in Andhra Pradesh as the demand is projected to be in the range of about of about 15 lakhs houses spread over the twin cities of Hyderabad and Secunderabad and other major towns.
The Andhra Pradesh Government has adopted a new strategy wherein, it continues to focus on the lower income level housing for the weaker sections across the state as it believes that the other two segments upper income and middle class segments can be tackled by others.
This year, it has targeted to develop 6 lakh houses for those identified and quality for these houses.
But the Andhra Pradesh housing board, which had become a near defunct organisation due to change Government focus and thrust on other sectors last decade, is a re-charged board now is eyeing new opportunities.
To higher income groups did not have problems of housing as they can afford and have choice of options, the weaker sections were addressed by the state government with the developmental schemes.
However, the middle class house aspirants are caught between lack of choices and reliable property developers.
Therefore, this segment has been targeted as this presents a huge opportunity.
The APHB has signed up with IJM (India) infrastructure Ltd, for a joint venture for developing a township in a 25 acres land at Kukatpally.
The private partnership is designed based on the expert opinion and guidelines framed by the national academy of construction.
Under this public private partnership (PPP) initiative of the APHB, which have now become a self-supportive entity, IJM, a subsidiary of IJM corporation of Berhad, Malaysia, is set to develop a township very close to Hitec city railway station.
The unit sizes vary from about 450 sq.ft to upto 3000 sq.ft with the cost priced at around Rs 900 per sq.ft. this project will locate about 30% low cost units and develop about 1500 apartments in all.
Similar initiatives have been taken up near the IIIT, and ISB and the games village near Hyderabad in the Cyberabad zone, where scores of housing complexes have come up aimed at chasing in on the IT sector growth phase.
On the lines of IJM joint venture, the APHB had earlier signed up with Cessma international Pte Ltd, a subsidiary of housing development board of government of Singapore.
The Cessma has extended both technical expertise and architectural expertise and will develop the township.
The proposed integrated township is to come up near Hyderabad and Pocharam, located on the Hyderabad-Warangal highway. Most of the apartments, to be developed by the Singapore-based firm, have already been sold out.
The real estate scenario in Bangalore is looking good. The rates are just right and the finance market is in favour of the buyers. The options available today are as good as they have ever been. The infrastructure projects in the city are making living in Bangalore convenient. The outer ring roads and flyovers have increased accessibility to all suburbs around the city.
The mood is upbeat. Bangalore is on the agenda of almost every visiting dignitary and the development in the city is visible. A throbbing commercial center. Bangalore is a favored destination and will in the coming years attract more entrepreneurs and job seekers.
The demand for both commercial and residential spaces is bound to go up. The builders in Bangalore have projects to suit every budget and requirement. From luxury apartments to low cost housing, there is something here for everybody.
Right now, the central areas and south Bangalore seem to be the most preferred choice. This could be attributed to the strong presence of a good many I T companies there. Bannerghatta Road, Hosur Road and Whitefield are in the “IT corridor” and figure high on preference among localities in Bangalore .
These areas are bound to witness a number of commercial /residential projects and Software Technology Parks being planned in the months to come. The suburban areas around Bangalore are in the grip of fast and large scale development. There is a demand in these areas for exclusive properties. Many who find the city too expensive look at properties in the suburbs at competitive prices. Suburbs also find favour with those who prefer living outside the hustle and bustle of the city.
One other factor that needs to be considered while analyzing the property market now is the fact that to a very large extent, the end users are buying properties. It is this segment that is driving the market, unlike earlier when it was the investors who drove the market.
The entry of IT Companies and the need for staff accommodation has already generated demand for housing. Increasing number of borrowers, competition. Last year has seen tremendous changes in the market scenario with respect to commercial real estate. More and more corporates are consolidating or expanding into newer facilities from their existing locations.
This trend is not only positive lending rates, tax incentives and availability of multiple options are other factors that are home buyers to the market today.
Real Estate Investments
In Bangalore, IT and ITES sector continue to dominate all major real estate commercial space transactions in the market. Backed by the tech sector, the demand for large floor plates has characterised major transactions in the city. Additionally built-to-suit development has also kept pace in the Bangalore Real Estate.
NRI’s living in US and Britain have begun to invest in properties in Bangalore, en masses and this may just be the indicant of the whole new trend in lifestyle and real estate.
According to reports
Nearly 7.5 mn sq.ft space is under construction in suburbs and peripheral areas of Bangalore, out of this 3 mn sq.ft is committed. This a good indication for HNIs looking t investment in Bangalore.
Though the yields in Bangalore have decreased, declining vacancy rates and buoyancy in the market have given optimism to Bangalore real estate.
Bangalore Commercial Market
Bangalore commercial Market comprises of CBD-Richmond road, Brigade road, Whitefield, electronic city, Bannerghatta road, Hosur road, airport road and outer ring road.
The major development is taking place in peripheral district area with over 3 mn sq.ft office space getting ready by march 2006. The demand for commercial space is increasing and the focus will shift to Yelahanka and Devanhalli due to new international scheduled to be operative by year 2008. Rental values in CBD have risen marginally while capital values across most micro markets have recorded noticeable upward movement.
Developers are building as per the demand of the companies requiring A grade space with large floor plates, higher ceiling heights, satellite connectivity and higher brand width. Whitefield continues to be the most preferred location today, as land prices are increasing developers are targeting peripheral areas to offer quality space at competitive prices. Returns on the commercial property are prevailing in the range of 9-12%.
Bangalore Retail Market
Bangalore is witnessing a retail revolution and by year 2007 the retail stock is expected to reach a whooping 4 mn sq.ft. in the near 2006, India may have its biggest mall with built up area close to 1.75 sq.ft on the Sarjapur road.
Year 2006 will also witness completion of many malls on outer ring road and in Whitefield. The family entertainment concept is fast picking up and new malls are complimented with cinemas, food courts and entertainment venues.
Bangalore Residential Market
There has been a noticeable demand for prime residential properties and developers are targeting residential areas in the outskirts of Bangalore such as Whitefield, Sarjapur road, Banerghatta road and Kanakpura road. Demand is also high for leased apartments in prime areas of central Bangalore by company executives, due to limited supply there is upward pressure on rentals.
New developments are shifting away from the central Bangalore due to close proximity to IT and ITES areas and availability of land for lifestyle projects. Nearly six mega townships promoted by reputed developers are on the anvil Bangalore. The proposed mega townships will have thousands of housing units and will be a mix of apartments, row houses and villas. Moreover the townships will include educational, commercial, retail and medical facilities.
Capital values for apartments in prime residential areas of Bangalore are in between INR 3000-4000 / sq.ft while rental values are in the range of INR 2530/sq.ft. per month.
Absorption rates for prime and quality residential apartments is very high thus demand is exceeding the supply in the areas of outer ring road, Whitefield and Airport road.
There is a scarcity of luxury apartments thus in last one year capital values in suburbs have increased around 35-50 due to high demand. Yield on residential property in Bangalore is ranging between 6-7%.
ENVIRONMENTAL NORMS AT URBAN CENTRES
Urban centres like Mumbai, Bangalore and Hyderabad have been drawing people from various states this has resulted in a huge insatiate housing demand. Rampant construction in order to meet this demand has posed to threat to the environment. Consequently new norms have been proposed in urban centres.
In a judgment delivered on October 6, the Mumbai high court called for a freeze on the destruction and cutting of mangroves in the entire state of Maharashtra. The order banned the dumping of debris in mangrove areas (a common under hand way to reclaim land) and forbade “any authority” from granting permission for development activity in them. The bench said no applications for development should be entertained “regardless of the nature of the township” of the land. It also banned construction within 50 meters of mangroves. The two judges asked the coastal zone management authority (CZMA) to file monthly reports to the court. They also authorized the principal secretaries of the forest, revenue and environment departments to ensure compliance of the order.
The property market is buoyant and promises, capital appreciation and assured regular income. Moreover it is one of the few investments which has indexed thus is effective hedge against inflation.
The retail market has and will see the growth of malls and multiplexes. On the residential front the concept of township has caught the imagination of the people in a big way.
Returns and income from real estate much higher than other investment options. The attractiveness is corroborated by the fact that about 20% of foreign direct investment coming to India in 2005-06 is estimated to be captured by real estate. This is expected to materialize through introduction of real estate venture capital funds and foreign direct investment in retail.
Lower interest rates and easy availability of housing finance at urban centres are going to be extremely vital going ahead in order to convert these urban centres to modern townships.
The boom in the IT sector has helped stroked the desire of the middle class. There is a burgeoning middle class with the purchasing power and one which is willing to spend. These people are on the look out for realty for investment purposes.
It is very vital in this realty boom that regulation and enforcement be maintained. Unscrupulous and fly by night broker, builders and constructions are also mushrooming in order to make hay while the sun shinning. It is very vital that if our cities be transformed in to dream cities then any development and construction decisions should be holistically done. This should involve complying with environmental and ethical norms.
Real Estate Scenario In India