THE real estate sector in India, which has been languishing for quite some time, perked up after the installation of a stable government in Delhi in May. While there was an overall improvement in
sentiments across industries and sectors following the return
of a stable, business-friendly government, the construction
and real estate verticals were buoyant with heightened
expectations from the new regime.
Says Shishir Baijal, chairman and managing director,
Knight Frank India: “With the country’s growth story
having virtually come to a standstill over the last few years,
the National Democratic Alliance’s dominance in the
parliamentary elections couldn’t have come at a better time.
Given the political will and the parliamentary muscle required
to push through reforms, the new government seems poised
to thoroughly remedy an economy in an urgent need for
And indeed, the government did not disappoint. Finance
minister Arun Jaitley, in his budget presented to the Indian
parliament, reiterated the government’s commitment to
ensure the revival of the real estate sector. The National
Democratic Alliance (NDA) government has undertaken an
ambitious programme to ensure housing for all by 2022. India
currently has a massive housing shortage of more than 22
The government is determined to clear the backlog by
initiating measures that would encourage private developers
to promote sprawling residential townships (with the focus
on affordable and low-cost housing), attract funds (including
foreign inflows) to the sector and simplifying the opaque rules
that govern the sector.
The concept of ‘affordable housing’ has not taken off in
India, mainly because of the high cost of land and high interest
rates. Jaitley declared that the National Housing Bank (NHB)
would anchor a mission on low-cost housing and earmarked
`40 billion to enhance the flow of cheap credit to the sector.
One of the major demands of the industry is the
simplification of the recently legislated Land Acquisition Act,
which makes it virtually impossible for developers to buy vast
tracts of land, especially in and around cities. The government
is now working on improving this piece of legislation to
ensure justice not just for land owners, but even for buyers.
Jaitley unveiled plans to promote 100 ‘smart cities’ across the
country, to cater to the needs of an emerging ‘neo middle
class,’ which aspires for better living standards and amenities.
The smart cities would feature the latest in IT and telecom
including wi-fi connectivity, integrated public transport and a
host of other features.
Another major move of the government to boost liquidity
in the real estate sector was the decision to revive real estate
investment trusts (REITs). In his budget speech, Jaitley said the
government would modify the tax laws to encourage foreign
investors to set up REITs and list them on the stock exchanges.
In August, the Securities and Exchange Board of India
(SEBI), the capital markets watchdog, endorsed the setting up
of REITs. These investment trusts (which are like mutual funds
for the realty sector) invest in specific projects of developers,
which fetch them regular returns by way of rents; they also
Revival of realty sector
The installation of a stable government at the centre has resulted in the long-awaited
revival of the real estate sector in India, writes Nithin Rao
have the option of exiting the project after a few years, making
handsome capital gains.
SEBI’s new norms stipulate that REITs should have an
asset base of Rs5 billion and the initial issue size should be
at least Rs2.5 billion. At present, they are restricted to invest
only in commercial properties. Retail investors will have to
subscribe a minimum of `200,000 in units of the REITs.
India’s real estate sector has seen several private equity
funds from the US, Europe and Singapore invest in projects
in recent years. However, lack of clarity on tax rules has
prevented large inflows of funds.
The bulk of India’s real estate sector is accounted for by
about a handful of cities including Mumbai-Navi Mumbai,
Delhi and the satellite cities of the National Capital Region
(NCR), the four southern cities of Bangalore, Chennai, Kochi
and Hyderabad, and cities such as Pune, Ahmedabad, Kolkata
Mumbai, which is India’s commercial and financial capital,
is also the real estate hub of the country. Real estate prices
in premium properties in tony localities of south Mumbai
(including Cuffe Parade and Malabar Hill) cost upwards of
`120,000 a sq ft. Elsewhere in Mumbai, property prices range
from `20,000 to `60,000 a sq ft.
While buildable space has always been in short supply in
the metropolis, developers have come out with innovative
ideas including redevelopment of existing tenements in the
heart of the city. Similarly, a vast area in central Mumbai –
which was the textile hub of India till the 1980s – has also been
redeveloped, with gleaming steel-and-glass office towers and
residential high-rises replacing the smoke-spewing chimneys
of the textile mills.
In Delhi and the NCR, there is maximum development
occurring in the satellite cities such as Gurgaon, Noida and
Greater Noida. In Bangalore, developers are focusing on the
southern and northern parts, where new developments are
One of the major factors triggering real estate development
across India is the unveiling of major infrastructure projects.
In Delhi and NCR, for instance, the roll-out of the Delhi Metro
(and to a lesser extent a smaller one in Gurgaon) has boosted
property prices in several areas.
Even in Mumbai, the recently-inaugurated Mumbai Metro
– which connects the suburbs of Versova and Ghatkopar – has
resulted in property prices rising by 25 to 30 per cent in new
projects in residential areas that lie quite close to the new
In Bangalore, the IT capital of India, the new international
airport – and a 12-km-long elevated corridor that links it to
the city – has boosted property prices in the northern parts.
Chennai, the capital of the southern state of Tamil Nadu
(which is also a major industrial and automotive hub),
has seen developments along a new IT corridor; the Old
Mahabalipuram Road is where the action is, with several new
high-rise residential buildings and commercial towers being
built at a frenzied pace.
The property scenario in Pune got a boost after the
construction of the Mumbai-Pune expressway, a 100-km-long
corridor of international standards, that has cut travel time
between the two cities by more than half.
Lotus Boulevard, Noida
A8 Response Feature India Abroad August 29, 2014