real estate article (final)_uddipan nath

8/14/2019 Real Estate Article (Final)_Uddipan Nath

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The Time is Just Real for Indian Estates/

Indian Estates going Real/

Realty of the (Indian) Estates

India is the worlds largest democratic system by population size, and one of the

fastest growing economies in the world. Accordingto the CIA World Factbook, Indias estimated

populace was approximately 1.16 billion people asof July 2009. Indias gross domestic product (GDP)on a purchasing power parity basis has beenestimated at approximately US$ 3.297 trillion in2008, making it the fifth largest market in the world.India has experienced swift economic growth, withits GDP having grown at an average growth rate of8.8 per cent between fiscal 2003 to fiscal 2008. Thishigh growth trail was somewhat impeded in fiscal

2009 with the growth rate of Indias GDP slowingdown to around 6.7 per cent as a result of the globaleconomic downturn. However, despite the globaleconomic deceleration in fiscal 2008, India hascontinued to be one of the rapidly growing economies and is exhibiting optimisticsigns of recovery following the global financial slump. Indias ability to recuperatefrom the global slowdown and its own domestic liquidity crunch has largely beendriven by the countrys large domestic savings and corporate retained earnings, whichhave been used to fund investment. Likewise, although urban consumption hasslowed as a result of a recent decline in the labor market and job losses, low exportdependence, large rural consumption and employment have all helped India to sustainspending, especially in infrastructure and real-estate sectors.

The real estate sector which involves the development of residential housing,commercial buildings and office spaces, industrial facilities and warehouses, hotels,restaurants, cinemas, trading spaces such as retail outlets and the purchase and sale ofland and land development rights, is closely associated with the macroeconomiccondition of India.. This sector plays a significant role in the country's economy. Thesector is the second biggest in India in terms of employment generation. Almost 80

per cent of real estate developed in India is in the residential space, the rest comprisesprimarily of offices, shopping malls, hotels and hospitals. Almost five per cent of

India's GDP is contributed to by the housing sector.

Growth in recent years in the sector has been driven primarily by the informationtechnology (IT)/ information technology enabled services (ITeS) sector with anincrease in the demand for office spaces, growing presence of foreign businesses inIndia, the global strides of Indian corporates and a rapidly increasing consumer class.The real estate sector in India is characterised by -

Domination by a few large national developers having pan-India presence.

Presence of regional players who are expanding to achieve an pan-Indiapresence.

Shift in the type of operations from sale model to lease and maintenance model.

The key factors that affect demand and supply in the real estate sector include -


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Robust economic growth of India

The earning population of India (persons in the 20-59 age bracket) which isexpected to increase as a percentage of overall population which n turn isexpected to result in greater demand for housing

Lowering of interest rates by banks and financial institutions is expected to lead

to increased new home purchases, since a large portion of new houseacquisitions are financed through banks and financial institutions.

Foreign direct investment (FDI) has also been influential in the growth of thesector since the opening up of FDI in 2005, a significant amount has beenchannelled into the housing and real estate sector.

The housing demand in India is expected to increase from 0.8 million units in 2009 to1.1 million units in 2011, across ten major Indian cities. A large chunk of the demandfor housing, especially in the urban centres such as Mumbai, Bangalore, Delhi(including Gurgaon, and NOIDA) and Pune, is likely to come from high-rise

residential buildings. Constructions of high-rise apartment buildings are likely to bedriven by the lack of space in citiessuch as Mumbai and proximity tooffices and IT parks in places suchas Gurgaon, Bangalore and Pune.The high-rise way of life isgradually soaking into other citiessuch as Kolkata, Hyderabad andChennai due to growingaffordability, nearness to IT andITeS parks, and the integrated

township concept being embracedwithin immediacy of such IT/ITeS

parks.

The demand for houses is highest for Mumbai region followed by Kolkata. Soaringdevelopment of residential activities is increasingly getting concentrated on outskirtsof ten major Indian cities (as has been stated below) as prime areas these cities aregetting saturated. These ten major Indian cities along with names of their outskirtswhich are seeing a burst in real-estate activities include Major Indian Cities Prominent Outskirts

Mumbai Thane, New Mumbai, Mulund, Borivali, Kandivali, Andheri

Delhi Rohini, Pitampura, Janakpuri, Dwarka, Sohna Road,Manesar, Indirapuram

Kochi Kakkanad, Marudu

Kolkata North 24 Parganas, Rajarhat, EM By-pass, Salt Lake, South24 Parganas,

Chandigarh Mohali, Zirakpur, Panchkula

Pune Hinjeqadi, Hadapsar, Pimpri-Chinchwad

Bengaluru Hebbal, Whitefield

Chennai OMR, GST Road

Hyderabad Hi-tech City, Shamshabad, Shameerpet

Ahmedabad S.G. Highway, Prahlad Nagar, Chandkheda


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During the last five years, locations such as Bengaluru, Gurgaon, Hyderabad,Chennai, Kolkata and Pune have established themselves as budding destinations forcommercial development, and are competing with traditional business hubs such asMumbai and Delhi. These emerging hubs have succeeded in matching theirmanpower base with necessary skill sets, aggressive business environments, cost

efficiencies and enhanced infrastructure. The contemporary relative position of theurban growth centers in India may be summarised as follows:

Metropolitan destinations such as Mumbai, Delhi and Bengaluru haveconsistently been the traditional business hubs and have traditionally attractedinvestment opportunities. These markets shall continue to be focal points forspecific business sectors and high value destinations for corporate headquarters.Furthermore, peripheral business districts such as Thane, Navi Mumbai, Gurgaonand Noida have emerged as cost effective alternatives for large commercialactivities

Locations such as Kolkata, Pune, Chennai, Hyderabad, Chandigarh, and Mohalioffer cost advantages, developed infrastructure, supportive local governmentsand fewer constraints on the supply of real estate. Growth in these emerginglocations is primarily led by the growth and consolidation plans of corporationsin the IT and ITES sectors.

Real estate development companies typicallyfollow a sale model for their residential projectsand a lease model for office space and retail

projects as they believe that this provides themwith stable cash flows. In case of hospitality

projects however, the most real estate

development companies currently follow anoperating agreement model, whereby the hotel istypically owned by them and operated by a hotelchain.

For most residential projects the developerstypically receive approximately 15-20 per centof the purchase price as down payment at thetime of booking a particular unit and theremainder through periodic payments linked tocertain other construction milestones while the

project is being developed. Developers in Indiagenerally launch such projects and commencethe sales process for a portion of the total

number of units to be sold around the time of commencing construction.

The large national developers having pan-India presence generally utilise anoutsourcing model that allows them scalability and also emphasises contemporarydesign and quality construction. Such developers in addition to having experiencedand capable design management and project management teams who oversee andexecute all aspects of project development also have strong and long-standingrelationships with external service providers such as architects, landscape planners

and contractors, and typically outsource all of their construction and design works.This allows then to work with several international architects (such as SCDA


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Architects, Singapore and Bentel and Associates, South Africa), and with domesticcontractors (such as Larsen & Toubro Limited) which provide them with innovativedesign capabilities and quality construction. The outsourcing model provides thedevelopers with the scalability required not only to undertake large developmentssuch as but also to explore opportunities and undertake similar and other

developments in different parts of India.

In recent past several leading real estate development companies have announcedtheir plans for issuing an initial public offer (IPO); the objects of the issue typicallyinclude:

Acquisition of land development rights for their forthcoming projects

Construction of their forthcoming projects

Repayment of loans

Most leading real estate development companies in India are increasingly focussingon premium developments, and this is demonstrated by the emergence of innovative

projects through prominence oncontemporary architecture, strong projectexecution and quality construction. Aninteresting trend that has become visibleoff late in the Indian real estate space isthe increasing integration of residential

projects with office space, retail,hospitality or social infrastructure

projects, as the developers seek to createdestination developments, which

enhance the desirability of the residentialunits. The emergence of the integratedtownship format is another highly visibletrend in the residential sector.Availability of large land parcels as wellas office developments in the peripheralareas of major Indian cities are leading todevelopment of a number of integratedtownships to accommodate the growing

population of these cities. Theseintegrated townships typically offer integrated development of residential,

commercial, retail, and leisure facilities.

(1500 words)

real estate article (final)_uddipan nath

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