India’s realty industry scrapes the sky

April 1st, 2008 - 10:39 am ICT by admin  

By Anuradha Shukla
A decade ago, Noida was little more than a scrubland just outside India’s national capital, New Delhi. Today, it is a booming township with unending concrete structures and is home to several multinationals. This metamorphosis of Noida in many ways symbolises India’s booming realty industry, estimated at $15 billion, and growing at a whopping 35 percent annually. “The real estate scene in India has undergone a sea change in the past four years,” said Venugopal N. Dhoot, president of the Associated Chambers of Commerce and Industry (Assocham), one of India’s three leading industry lobbies.

“Growing economy, greater integration with the global economy and increasing domestic and foreign investment are creating demand for residential, official and retail space to propelling the realty industry’s growth,” Dhoot told IANS.

That is apparent from the number of high-rise buildings dotting the skylines of Indian cities with more than a thousand developers busy with construction works across the country.

And, as Assocham says, this is just the tip of the proverbial iceberg, and pegs the foreign direct investment component in the domestic realty market at over $30 billion as against the total size of $102 billion over the next 10 years.

“Today there is demand for good quality housing with first-rate infrastructure, international standards and world class amenities. With disposable incomes rising and lifestyles changing, people are looking for class and comfort,” said Rohtash Goel, chairperson of Omaxe, a leading realty firm.

“Penthouses, villas, duplexes, luxury apartments, condominiums - India has all the facets of luxury housing on par with international standards. Seeing this demand, all players are clocking good sales.”

“Besides luxury apartments, the integrated township concept has also been ushered in, in a big way in India. Today there is hardly any big developer who is not engaged in the township project,” said Pradeep Jain, chairperson, Parsvnath Developers.

“These integrated townships boast of luxury residences with features like golf course, tennis academy, shopping complexes, 5-star hotels, medi-city, university, commercial complexes and IT Park and all the facets of luxury that one can think of,” he added.

For some players, the twin boom in the realty industry along with the upsurge in stock markets have taken their personal valuations to dizzy heights - as in the case of K.P. Singh, the chairperson of DLF, which has interests in and around the national capital, especially the boomtown of Gurgaon.

According to the latest issue of Forbes magazine, Singh is today ranked among 10 richest people in the world, from the 62nd position he enjoyed last year, with personal wealth tripling to an astounding $30 billion. In fact, he is also the world’s richest realty developer.

This apart, seven of India’s real estate biggies also found their place in the Forbes list of 54 Indian billionaires and with profits soaring in this industry, even leading global players are making a beeline for investing in this booming market.

Royal Indian Raj International, Blackstone Group, Goldman Sachs, Pegasus Realty, Citigroup Property Investors, Trinity Capital, Lee Kim Tah Holdings, Morgan Stanley and GE Commercial Finance are among those pumping billions of dollars into the Indian realty industry.

The largest US pension fund CalPERS, hedge fund Farallon Capital Management, US-based developer Tishman Speyer and non-resident Indians-promoted Trikona Capital have also established their presence in the Indian realty sector.

But among the biggest investors are those from the Gulf like Emaar and the Salim group. Emaar, the world’s largest listed real estate developer, has announced $12 billion investment with India’s MGF Developments. Similarly, the Nakheel Group has signed a $20 billion deal to develop townships and DAMAC Holdings plans to invest $3-5 billion in the country.

“Certainly the world is coming here because there is business. The real estate in India has witnessed substantial price appreciation in the last three-four years”, said Dhoot.

“Compared to other property markets, India offers a high return of around 20-25 percent on real estate investment. This is one of the factors encouraging global players to look forward to Indian real estate, adds the report.”

Other factors attracting attention from foreign investors include high rentals, capital value appreciation, and large availability of quality supply in India. In fact, the real estate boom is also not limited to the larger metropolises and has permeated to the burgeoning smaller towns and cities and emerging metros.

Replicating the success of metros, tier-II and tier-III cities like Lucknow, Nagpur, Ahmedabad, Vadodara, Lucknow, Goa, Panipat, Karnal, Indore, Raipur, Jaipur, Agra, Siliguri and Kochi have emerged as new hubs for the real estate developers, who are changing the face of these cities.

“As realty market in metros like Delhi, Mumbai, Bangalore has almost saturated and reduced the expected return, the growth is spilling over to the smaller cities - they offer great opportunities,” said Kunal Banerji, president for marketing and corporate communications with Ansal API.

“An improvement in infrastructure in the smaller cities has also encouraged the buyers. Around 60 percent of the total of 7,000 acres of land that we are developing in north India is mostly in Tier-II cities.”

So all the big investors like Emaaar, Ansal, Parsvnath, DLF are now heading to these cities with their upcoming projects and apart from housing units, demand for office space, the upcoming special economic zones and retail trade industry are also fuelling the realty sector.

“There is big potential in Tier-II and tier-III cities. To provide initial depth to our retail plans, we will spend close to Rs.12.5 billion ($200 million) each on the two formats - destination malls and shopping centres - across India,” said Ajay Khanna, senior executive director for retail with DLF.

The company is also proposing what they call the biggest mall in the world over 32 acres along the National Highway Eight that connects the New Delhi with Jaipur in Rajasthan.

According to Dhoot, India’s booming information technology sector, especially the business process outsourcing industry is also driving the realty industry with the projected demand of 200 million sq ft and some 20 million dwelling units. The retail trade industry in India, which is growing at 30 percent per annum, is also another area driving the growth, he said.

The chamber estimates that nearly 30 million sq ft of organised retail space is currently available, while another 90 million sq ft is likely to be added by 2008, with over 265 planned mall projects.

“The recognition of the potential that the real estate sector holds has also prompted many measures such as 100 percent foreign direct investment and allowing real estate venture capital funds to further boost the growth,” said Parsvnath Developers’ Jain.

“In addition, the announcement of real estate mutual funds is attracting foreign investors across the globe.”

And some big players in the business, like Sushanto Roy, the head of Sahara Housing and Infrastructure, feel the boom has just begun, what with government’s own ambitious plans for rural development, urban renewal, roadways, highways and rural infrastructure.

“We are upbeat about the future growth of real estate development.”

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