60 years of Indian real estate

Paradigm shift

The Indian real estate sector has grown exponentially in the last six decades, says Shilpa Sachdev


More than 60 years after India became a Republic, the country has seen phenomenal changes. It has gained recognition globally as a major player in the world economy. This is also reflected in the journey of the Indian real estate sector, which has emerged as one of the significant contributors to the country's GDP. 

The country has witnessed a tremendous housing boom, specifically in the last decade. Newer locations have come to the fore expanding the boundaries further. While the metropolitan cities continue to remain in demand, even Tier II and Tier III cities are fast gaining momentum on account of their commercial and strategic viability. On the policy level, liberalization indeed threw open the floodgates of the country's development. 

Surabhi Arora, MRICS, Associate Director - Research, Colliers International says, "The sector started flourishing with India embarking on broad-based liberalization in post 1990's era when various multinational corporates started seeking permission to commence operations in India. Mumbai, being the financial capital of India, was the first city to witness the influx of financial and services multinational companies. By 1997, the real estate prices increased to the point where the companies started looking for cheaper, cost-effective locations and Indian real estate witnessed emergence of new alternative/peripheral business districts in all the major cities in India."

Over the years, the landscape of Indian cities has undergone a great transformation. While the key cities have grown beyond their current potential and are expanding vertically, areas which were earlier categorised as peripheral cities have today become prime areas holding tremendous growth potential. A Kalpataru spokesperson says, "Areas like Thane, New Mumbai, Panvel around Mumbai and areas like Gurgoan, Noida around New Delhi have become centres of trade with excellent infrastructure support like state-of-the-art commercial, retail and integrated township projects offering world-class lifestyle amenities. Also, many other areas within the heart of the cities, which were earlier categorised as industrial or textile mills, have also been opened up for development which is also leading to high-end luxurious projects being launched in these areas."

The housing sector has attracted a lot of demand and appreciation in the last few decades. Highlighting a few important events, Anuj Puri, Chairman and Country Head, Jones Lang LaSalle India says, "The roots of the high appreciation rates on India's property market witnessed during the boom period lie in the reduction of interest rates that the NDA Government instituted after 2001. The very amenable borrowing rates encouraged individuals to avail of home loans to buy residences, where actual property purchase had only been an option for the considerably rich before that. This resulted in a huge demand for quality real estate all over the country post 2003. After March 2005, Indian real estate rates displayed a seemingly unstoppable upward curve."

The scrapping of the Urban Land Ceiling Act was the game-changer but it is yet to see its true implementation. According to Mayur Shah, CMD, Marathon Realty, the housing requirement in Mumbai was never an issue post independence. Smaller housing societies would come together and develop residential buildings until 1976 when the Urban Land Ceiling Act came into force. Shah shares, "I still remember when my dad constructed the first building in Mulund in the year 1972, rates were really reasonable. He was selling a flat at the rate of Rs 51 psf in Mulund. So there was never a housing problem but the introduction of the ULC Act strangled the real estate development in the city. Land got locked but urbanisation continued its pace leading to a massive housing shortage. As a result, the prices shot through the roof. This continued till the year 2008 when the ULC Act was scrapped. But then the backlog was too much to phase out. Today, we have a 1:20 ratio of shortfall where if 20 units are required, only one is built. Infrastructure is still a big challenge. What we need is clear, transparent, speedy and sustainable development."

With time, several changes have been introduced to fast track the sector's growth. Manju Yagnik, Vice-Chairperson, Nahar Group says, "Various reforms by the government such as repealing of Urban Land Ceiling Act, altering FSI rules were the key drivers for the real estate development along with the massive infrastructure development. One must also credit the change that was witnessed within the real estate sector. 


For instance, this sector, which was once dominated by old contractors, has welcomed the arrival of a new crop of developers, who have introduced a professional approach towards property development and international standards of construction. The country has witnessed revolutionary changes in the cities such as Mumbai, Bangalore, Hyderabad and Pune."

Newer technology and a competitive environment have led to the development of a host of new amenities, including township living where everything is available at the doorstep. This has brought a lifestyle shift indeed. Yagnik adds, "World-class health centers, schools, shopping malls, and amenities such as amphitheatres, clubhouses and gyms in the townships that were unheard of until some time ago are now being offered by developers. The competition within the sector has benefited property buyers as many developers today are actively engaging the services of international designers and architects for their projects."
While the sector has come a long way, there is still a room for reforms that will unlock the potential of the industry. 

Shailesh Puranik, MD, Puranik Builders says, "The country has seen a growth rate of 8-9% in the last decade with a 25-30% increase in urbanisation. Allied sectors like materials and infrastructure are also developing as a result. If the infrastructure sector can be given industry status why not real estate? This will facilitate cheaper credit to the industry. ECBs are allowed but they are restricted to a limit. Enough finance is still not available to the sector. The government needs to act as a catalyst and not an impediment. Single-window clearance is the need of the hour; timelines need to be reframed. With different municipal corporations getting established, Mumbai will become one big metropolis in the time to come. We need better clarity and defined policies to sustain the growth coming our way."

As the country's skyline continues to change and redefine itself, there are miles to go. Starting with an industry status for the sector, the clarion call demands for simplification of procedures and systems to infuse the much-needed transparency and boost consumer confidence. Better regulation, best international practices and a professional approach will pave the way forward.


published in Times Property on Feb 2, 2013

Pre Budget Expectations - Mumbai Real Estate

Priority list

The real estate sector hopes for lower interest rates, easier finance options and simplification of procedures from the upcoming Budget, says Shilpa Sachdev


As a sector that contributes significantly to meet one of the basic demands of life, the housing industry has much to ask for the Finance Minister in the upcoming Budget. With a view to keeping housing affordable, competitive and buyer-friendly, the real estate sector hopes that the government will chip in more incentives at the policy level.

With FDI in multi-brand retail, infrastructure status to affordable housing and RBI's recent reduction in the repo rate and CRR, there is optimism in the air. However, experts present their list of expectations from the budget, starting with lower interest rates that will redeem buyer interest.

Anshuman Magazine, Chairman & MD, CBRE South Asia Pvt. Ltd. Says, "The expectation from the budget is to reduce the interest on home loans, especially for mid-end housing as well as give further tax incentives for investments in housing. The reduction in CRR and Repo rate announced by RBI will bring in some liquidity into the banking sector. This is a positive move and hopefully will reduce interest rates marginally which will help the real estate industry. This will also propel growth in construction activity across the country."

Magazine adds, "Government measures regarding permitting foreign investment in sectors such as retail, interest subvention schemes for the low economic strata and enhancing liquidity in the market are likely to revive demand for real estate space, especially in residential and retail. The budget should continue to allocate a larger share of funds for infrastructure development. Another step would be the introduction of Real Estate Investment Fund (REIT) in the market which will help mobilise funds to be invested in the real estate sector."

In the last few years, the realty sector has been grappling with a few challenges that need to be addressed at the earliest. These include higher costs, slow pace of growth, declining sales, difficulty in raising funds and stalled project approvals. Enlisting his demands, Boman Irani, CMD, Rustomjee says, "Currently, the sector is looking at certain key policy decisions which make home-buying a priority for everyone in the country. Giving infrastructure status to the affordable housing sector will help facilitate easy financing and address the housing problem to a large extent. Also, the one percent interest subsidy on home loans should be extended up to Rs 35 lakh."

Irani feels that the Government can play a major role in incentivizing the real estate industry by bringing down the taxes which comprise over 35 per cent of the sale value. He says, "A reduction in the base rate is extremely important as it will enable banks to lower their lending rates thereby resulting in reduction of interest rates charged to developers and home-buyers. Government should also look at developing provisions for Special Residential Zones (SRZs) in order to incentivize housing stock. Reduced taxation and simplified taxation by possibly introducing GST will be another welcome move. It will also significantly bring down prices benefitting the home buyer. We are looking forward to a raise in the income tax exemption limit to three lakhs and a reduction in excise duty rates to put higher disposable income at the hands of the public."

In order to meet the demand for additional homes, there is an urgent need to speed up the approval process and also improve infrastructure to sustain the spill-over growth, believes Sukhraj Nahar, Managing Director, Nahar Group. "We expect the government to come out with the single window clearance system for approving projects. To match the increasing residential development taking place in tier I and tier II cities, there is a need to improve the infrastructure base in these cities. Additional funding assistance to the prime cities for infrastructure and for the real estate industry to meet the shortage of working capital is expected from the Budget," he adds.

The government needs to issue guidelines that will foster the growth of affordable housing and encourage more township projects to meet the growing housing need. Dhaval Ajmera, Director, Ajmera Realty and Infra India Ltd. says, "With growing urbanisation in metros, the real estate industry is seeing huge opportunity for creating newer townships. It is vital that the Government should promote townships alongside industrial belts and give developers fiscal benefits to township development to entice developers in this segment. Clear guidelines should be announced by Government in order to avoid any kind of ambiguity on point of levying Service Tax on under construction projects."

Ajmera adds, “A sheer relief could be bringing in affordable housing.  This should be considered important with priority lending given to banks who could in return offer concessional costs to keep the cost of tenements within the reach of the common man. The budget should look forward to extending existing benefit of Sec 80 IB(10) of IT Act for developing affordable housing as  the country is still in a huge shortage of tenements.”

published in Times Property, Mumbai on Feb 16, 2013

State gets New Committee for Environmental Clearance

A shot in the arm 

As the state gets a second committee to accord environmental clearances, the backlog needs to be cleared at the earliest, says Shilpa Sachdev

Bullets

-       All new and pending construction projects with a built-up area of more than 20,000 sq m coming up in the MMR will need an environment clearance from the newly-formed state level expert appraisal committee  

       As of March 2012, there are 554 cases across the state pending approval

With a view to expedite the approval process, a new panel has been recently formed to grant environmental clearances for construction projects, especially in the Mumbai Metropolitan Region (MMR). Maharashtra already has a state-level expert appraisal committee (SEAC) and this is a second one for the state. The SEAC-I was formed after the ministry of environment and forests (MoEF) issued a notification in 2006, making environment clearance mandatory for construction projects with a built-up area of more than 20,000 sq m in the state. The SEAC II will focus on giving environment clearances for construction projects in the MMR. All new and pending construction projects with a built-up area of more than 20,000 sq m coming up in the MMR will need an environment clearance from this newly-formed committee of the state environment department. 

Currently, more than 500 proposals are still awaiting clearance. According to Rajat Malhotra, COO - Integrated Facilities Management (West Asia) Jones Lang LaSalle India, a separate body to fast-track the projects located in the MMR will help in clearing the backlog. He explains, “State statistics indicate that 50% of the projects requiring clearances in Maharashtra are located in MMR, specifically Thane, Raigad and Mumbai City. About 55% of the pending proposals from Feb 2011 to March 2012 are in MMR. The percentage of pending MMR projects from April 2012 to July 2012 is also about the same. This clearly indicates the need to focus on projects in the region.”


Real estate, especially the residential segment, which caters to the basic need of housing continues to be the most adversely affected sector feels Manju Yagnik, Vice Chairperson, Nahar Group. She says, “Ever since its formation in 2006, SEAC I has been going through the appraisal process for every project proposal including that from the real estate sector in the state before sending its recommendations to SEIAA, the authority which takes the final decision on either issuing or rejecting the environmental clearance. With hoards of applications being received from every industry segment, inordinate delays were inevitable. Reportedly, over 540 proposals are currently awaiting clearance from SEAC I.” 

Other than the developers, project delays also affect the end home buyers who have invested huge sums of money for buying their own homes. Besides dipping into their savings, home buyers who avail of loan facilities either from their employers or banking or housing finance institutions for house purchase, have to start paying EMIs from prescribed dates. Delays in issuing such clearances result in late completion of the projects with serious consequences for buyers. 
  
Yagnik says, “This situation is avoidable if a process for speedy environment clearances for realty projects in Mumbai is introduced. Perhaps formation of SEAC II may bring some relief. No doubt that today all concerned including developers, home-buyers and people at large, are more than keen to protect environment in every possible manner.” 


Malhotra adds, “Inordinate delays lead to erosion of investor and consumer confidence and demands for cancellations and refunds. Environment clearance is an essential pre-requisite for all developments above 20,000 sq.mts. Projects that are able to get the clearance can commit capital to project implementation with the risk securely mitigated.  This bolsters the developer’s, investor’s and consumer’s confidence to commit resource and capital to the development, which will in effect ensure speedy and earnest developmental activity.”


Experts hope that with the introduction of the new committee, many pending projects will soon see the light of the day and benefit the end consumer. Vyomesh Shah, MD, Hubtown Ltd. says, “The issues here require a specific approach and we are glad that such a committee has been formed. It will bring down the clearance time due to its focused approach and also benefit the consumers by increasing the number of launches and hence creating more supply. This will help in stabilising the prices and make the equation favourable for consumers.” 

Yagnik feels that with the formation of SEAC II, which will exclusive look into new as well as pending projects in the Mumbai Metropolitan Region, the load will be divided to a great extent. She says, “With such clear demarcation, both the committees would hopefully be in a position to speed up this process.”

Avers a Lodha Spokesperson, “We believe that the formation of the second committee on environmental clearance is a progressive step by the state environmental department, given a large number of projects across the state pending environmental clearance. As of March 2012, there are 554 cases across the state pending approval. Over half of these projects belong to the MMR region. As the new committee will primarily focus on the MMR region, we see a fairly even split of projects across the two committees, which is likely to speed up the approval process in MMR.”

Ali Lokhandwala, Joint MD, Lokhandwala Infrastructure says, “If approvals are received in time, banks approve the projects for funding faster and buyers can get home loans quicker. It is lesser risk for the buyer and also helpful for the developer who has to run to different committees for approvals. In fact, what we need is single window clearance but even a focused committee is going to be helpful. It hints at a professional approach on the part of the government. Ideally, the committee should also have a developer on board to track the real industry issues and growth.”

Yagnik also feels that the question of applying the same set of norms for environment clearance to every project in every state remains to be addressed. She says, “It’s quite known that every location, region and state in the country has different challenges on the environmental front.  For example, Mumbai with its geographical peculiarities, constraints, its long coast line, burgeoning population and the ever-increasing housing demand, needs to be looked at with a different perspective on environmental issues. Enforcing the standard environment norms for the city’s huge coastal properties, high-rise buildings both for residential and commercial purposes, affordable housing, redevelopment of old and dilapidated buildings and slums and bigger outlay projects have already stalled many of such projects in the city. Many among these projects are required to fulfill a much larger set of norms, causing further delays in receiving clearances.”


Calling for a set of guidelines rather than a committee, Prakash Shah, Director – Finance and Business Development, Hiranandani Constructions rightly concludes, “We already have a state level committee and it has been observed that committees take their own sweet time in granting clearances. This chokes up the supply and creates obstacles in generating enough affordable housing stock in the country. What we need are concrete guidelines for granting environmental clearances. We need systems that will foster fast decision making. We need to be in a position to generate good supply of housing and it needs to be affordable. We are not against formation of a committee, what is important is that at the end of the day work needs to be done.”