Indian Real estate

Real Estate: Cover Story

The real estate sector in India is of great importance. According to the report of the Technical Group on Estimation of Housing Shortage, an estimated shortage of 26.53 million houses during the Eleventh Five Year Plan (2007-12) provides a big investment opportunity.

According to a report ‘Emerging trends in Real Estate in Asia Pacific 2011', released by PricewaterhouseCoopers (PwC) and Urban Land Institute (ULI), India is the most viable investment destination in real estate. The report, which provides an outlook on Asia-Pacific real estate investment and development trends, points out that India, in particular Mumbai and Delhi, are good real estate investment options for 2011. Residential properties maintain their growth momentum and hence are viewed as more promising than other sectors. ULI is a global non-profit education and research institute.

Further, real estate companies are coming up with various residential and commercial projects to fulfill the demand for residential and office properties in Tier-II and Tier-III cities. For instance, Ansal Properties has several residential projects in cities such as Jodhpur, Ajmer, Jaipur, Panipat, Kundli and Agra. Omaxe has also planned around 40 residential and integrated township projects in Tier-II and Tier-III cities, majority of them being in Uttar Pradesh, Punjab, Madhya Pradesh, Rajasthan and Haryana. The growth in real estate in Tier-II and Tier-III cities is mainly due to increase in demand for organized realty and availability of land at affordable prices in these cities.

According to the data released by the Department of Industrial Policy and Promotion (DIPP), housing and real estate sector including cineplex, multiplex, integrated townships and commercial complexes etc, attracted a cumulative foreign direct investment (FDI) worth US$ 9,405 million from April 2000 to January 2011 wherein the sector witnessed FDI amounting US$ 1,048 million during April-January 2010-11.

New Projects:

• Private equity fund IL&FS Investment Managers (IIML) is estimated to have invested US$ 300 million in real estate and urban infrastructure projects in 2010.
• Close to Nalagarh in Solan district, Dabhota is set to be the latest industrial area to be developed by the Himachal Pradesh government, say officials. The state government has already issued a notification and asked the state land acquisition officials to acquire 2,020 bighas of land at Baghota to be developed into industrial plots.
• Ramky Estates and Farms Limited, the real estate arm of the Ramky Group, is contemplating to enter Indian market by July 2011. The company is evaluating on land acquisitions in Kolkata and Bhubaneswar.
• Chennai-based VGN Developers Pvt Ltd has entered into a joint venture with private equity firm Pragnya Fund to initiate a new residential project with an investment of US$ 20.06 million in the city.
• Ascendas has entered into an agreement with a Japanese consortium of Mizuho Corporate Bank (MCB) and JGC Corporation to develop integrated townships in India, according to a press release from Ascendas. The integrated township is likely to be in Chennai, which has attracted investment by a number of companies from Japan. Ascendas of Singapore will be the master developer.
• Godrej Group's real estate company, Godrej Properties and Frontier Home Developers, has launched a residential project in Gurgaon with joint venture partner M/s. Frontier Home Developers Pvt. Ltd. This is a debut residential project in the national capital region (NCR) for Godrej Properties.
• Shristi Infrastructure Development Corporation will invest US$ 444.7 million over the next three years in seven small cities in West Bengal, Tripura and Rajasthan. The money would be used to build integrated townships, healthcare facilities, hospitality and sports facilities, retail malls, logistics hubs and commercial and residential complexes.
• Realty major Ansal Properties & Infrastructure Ltd plans to invest about US$ 330.8 million over the next three years on expansion of its existing integrated townships and to develop a group housing project in Haryana.
• Vision India Real Estate, a closely-held business group in the US, is investing US$ 5 million in Gem Group's upcoming residential project in Chennai. This will be the first joint development project for the US company that is proposing to invest US$ 100 to US$ 200 million over the next three years on projects, especially in the logistics arena.
• Realty major Embassy Property Developments has entered into a joint venture with MK Land Holding, a Malaysian company that specializes in pre-fabricated affordable housing, to build projects in the affordable housing segment. The proposed project entails an investment of over US$ 1.2 billion.
• Thai real estate developer Pruksa Global plans to invest US$ 218 million in projects in India and launched its first residential project in the country at Bangalore in October 2010.
• The International Finance Corporation (IFC) is in talks with several real estate developers to create large affordable housing projects in India. For FY-09 and FY-10 (fiscal year ending June 30), IFC's highest exposure has been in India. Out of the US$ 3.5 billion that IFC has committed in India, US$ 2.5-2.6 billion have been disbursed. IFC will continue to invest roughly US$ 1 billion in India every year for the next two or three years.

Government Initiatives

The government has introduced many progressive measures to unlock the potential of the sector and also to meet the increasing demand levels.

• 100 per cent FDI allowed in townships, housing, built-up infrastructure and construction development projects through the automatic route, subject to guidelines as prescribed by DIPP
• 100 per cent FDI is allowed under the automatic route in development of Special Economic Zones (SEZ), subject to the provisions of Special Economic Zones Act 2005 and the SEZ Policy of the Department of Commerce
• FDI is not allowed in Real Estate Business

In his 2011-12 Union Budget proposal speech, the Finance Minister Pranab Mukherjee has extended good news for real estate firms focused on affordable housing.

• He proposed raising the limit on housing loans eligible for a 1 per cent subsidy in interest rates.
• Widened the scope for housing under "priority-sector lending" for banks, making interest rates cheaper on them.
• The government earmarked a substantial amount to the Urban Development Ministry for spending on extension of Metro networks in Delhi, Bangalore and Chennai.
• The urban infrastructure development project has been allocated US$ 20.03 million.
• Urban Development Ministry has got total US$ 1.5 billion, an increase of US$ 68.53 million from the last fiscal 2010-11.
• The allocation for Bharat Nirman has been hiked to US$ 12.89 billion. Bharat Nirman consists of 6 flagship programs, the Pradhan Mantri Gram Sadak Yojana (PMGSY), Accelerated Irrigation Benefit Program, Rajiv Gandhi Grameen Vidyutikaran Yojana, Indira Awas Yojana, National Rural Drinking Water Program and Rural telephony.

The relaxed FDI rules implemented by Indian government have attracted more foreign investors and real estate in India. The revised investor friendly policies allowed foreigners to own property, and dropped the minimum size for housing estates built with foreign capital to 25 acres (10 hectares) from 100 acres (40 hectares). The overseas firms welcomed these modifications and they can now put up commercial buildings as long as the projects surpass 50,000 square meters (538,200 square feet) of floor space.

Road Ahead

According to the Confederation of Real Estate Developers' Associations of India (CREDAI), the affordable housing segment is set to play an important role in India's real estate sector in 2011 on the back of substantial demand ignited by economic recovery.

Affordable housing will be a key factor in driving the sector and India have already started working on progressive solutions in this area for effective and customised implementation of such projects.

Moreover, 2011 is expected to be a positive year for the real estate sector. The revival is expected to be driven by infrastructure growth, which in turn, can accelerate real estate activities both in the residential as well as commercial spaces.