The author analyses the housing boom in India, arguing that the rise in real estate prices is due to the average age of the emerging working class—in early thirties—, and also to the hot market even in the countryside, as the concept of owning second homes is gaining ground. Lynus Misquitta, from Mumbai.
“Land is in short supply, God has stopped making it
”, is the new slogan coined by the real estate entrepreneurs. On the face of it the slogan seems to be tailored to hook the gullible, but in actual practice the shortage of property and space in major Indian cities and towns justifies the scenario painted by the real estate honchos. The property markets in India are in a frenzy as they are driven by the boom in Information Technology and the rise of the educated and ambitious middle class and lower middle class. Real estate developers are trying to capitalize on the situation by offering better gadgets indoors and sports facilities outdoors. These developers even cater to the ambience of the housing complexes, that stir the whims and fancies of the young and the dashing, who care only for the best from the latest, to flaunt their wares to the jones’s.
Indians have become self-assertive and confident and they want to vie for the best, as they strive to live a decent life even at the expense of taking loans. And so the banks juggle with the interest rates to attract clients from the real estate sector. But it is not a bed of roses especially for the young striving couples. Individualism too plays a part as joint families are crumbling and the modern generation want to live independent lives and fulfil their ambitions and dreams.
Kekoo Colah, Executive director in India for Knight Frank is quoted in Business India saying that the spurt in real estate is “the biggest growth story in organized retail, ever witnessed on Planet Earth”. With the growth of the Indian economy at an average of 8% annually, real estate market — both commercial and residential— is supposed to grow 25% every year. Even rentals are higher in India—around 12% compared to 9% in China. The demand for retail space is even higher than ever before with hundreds of shopping malls flourishing in the country.
Families from middle class dream of owning homes in places where there is scenic beauty, flora and fauna.
The real estate market is hot in urban areas and even in the countryside as the concept of owning second homes is gaining ground even in 2nd tier towns like Goa that is incidentally a tourist paradise. Even the families from middle class dream of owning homes in places where there is scenic beauty and flora and fauna away from the bustle and monotony of city life.
Foreign Direct Investment has increased in the property market in India. Morgan Stanley have joined the Mantri Developers—a construction firm in Bangalore—and invested 68 million dollars. Merrill Lynch joined with Panchsheel Developers with 50 million dollars. GE Commercial Finance Real Estate invested 63 million dollars for the construction of IT Parks in India. Subsequently the Government of India passed a regulation allowing foreign construction companies to operate in India without local partners. Since then foreign construction firms like Tishman Speyer, from New York, and Portman Holdings, from Atlanta, have entered the Indian scene with their latest technology, discipline and management systems. Warburg Pincus, the largest private equity investor in India, is studying opportunities to increase their participation. According to the data released by the Department of Industrial Policy and Promotion, housing and real estate sector including the multiplex, integrated townships and commercial complexes attracted a cumulative foreign direct investment worth 9.4 billion dollars, from April 2000 to January 2011, of which from April to January 2010-2011 was 1 billion.
MNCs, Multinational Corporations, are also rushing in to join the fray of making hay while the sun shines. Most pharmaceutical concerns and foreign collaborations have vast offices and factories and more and more are entering India every year. NRIs too invest heavily into the Indian property markets. All this gives a great boost for the acceleration of property prices that have reached dizzy heights especially in metros like Mumbai, Delhi, Hyderabad, Bangalore and Gurgaon.
Local construction companies are also expanding. New Delhi-based DLF group and Bombay-based K. Raheja and Hiranandani Constructions are expanding beyond their home markets. DLF has taken prime commercial plots at Bombay’s Lower Parel area totalling around 17.5 acres for 160 million dollars and today the same area is quoting at three times more. DLF is going to set up a huge retail and commercial center, part of which has already been completed. Another huge construction activity has taken place in the city of Bangalore—Adarsh Palm Meadows—an 85-acre gated community complex having commercial and residential and IT park areas. It is constructed in California style.
The real estate market is moving in leaps and bounds inspite of bureaucratic speedbreakers and shortage of sand due to the government banning the dredging of sand to prevent denudation. In many Indian cities a lot of people cannot afford houses due to this and other factors like increase in stamp duty and registration of property rates. So these people have moved in towns and even extended suburbs to pursue their dream of owning a home, thereby, hiking property prices.
There is a vast potential for green building projects that are ecologically superior though a little expensive.
Could the real estate euphoria in India end up as a bubble that will eventually burst? The more you think of it, the more you see that it is not possible as Indian development activities are still in the primary stage and the educated middle and lower middle class are still on way to pursuing a better life with all round development and an economy that is still to improve considerably given another dose of sensible reforms. Moreover, there is a vast potential for green building projects that are ecologically superior though a little expensive. The India Property Show 2011, in Dubai, has given the Indians and the foreigners a peep into the potential of investing in real estate in India and there is already a positive move to invest in the Indian property market.
Believe it or not property prices even in villages have gone up considerably. It is a vicious circle and so long as Indians aspire to build their economy on a sound basis even with the help of small scale industries there is hope for a better tomorrow. Indian infrastructure development is still in infancy and the Five Year Plans are going to concentrate on developing the right hardware to give impetus to the farmer. India being an agricultural country most of Indians live in villages and if these villagers have the warehousing and refrigeration facilities, a good road network and financial assistance in the form of loans, there will be a vast improvement in the life of the average Indian who proverbially was born, lived and died in debt. With the right help from the Government things can change and we see the real estate boom even in the villages. As such many rural areas are already experiencing increase in their land prices, at least in those villages that have proximity of good roads and other infrastructure facilities.
Influence of SEZs
Special Economic Zones give a great boost for the economic development of the country. But it does come at a price as, earlier, land was bought by Government and sometimes by the private sector at a very low rate per acre. Now villagers and farmers are using pressure group tactics to sell their land at high prices or sometimes deny the corporates even the right to aspire for their land.
The concept of SEZs was first conceived and put into action in the year 2000 in the Government’s Exim Policy to raise the country’s exports and attract foreign direct investment. The establishment of SEZs in other countries had shown rise in employment opportunities and a boost for the economic development.
India, particularly has a great potential to attract FDI as the SEZs progress and bring prosperity to the land. The plus points are a large and skilled workforce, support from various ancillary industries and a huge domestic market. As the SEZs develop and attract employment, housing colonies mushroom bringing the real estate boom even in remote areas. In 2006 the Ministry of Commerce expected a FDI investment of Rs 1 trillion in these Special Economic Zones and the employment generation of 5 lakhs in the following years, as per report on Newsbytes.
In a newsletter on India Brand Equity Foundation, it says that there is a shortage of 26.53 million houses during the Eleventh Five Year Plan (2007-2012) and this is a great investment opportunity for construction companies, both from India and abroad.
The International Finance Corporation is in talks with several real estate developers to create large affordable housing projects in India. IFC has committed 3.5 billion U.S., out of which 2.6 billion are already disbursed. Subsequent years IFC is going to commit 1 billion dollars every year.
Most of the business houses are committed to give back to the country in the form of social responsibility. Hence business houses adopt villages and help the men, women and children with the rudimentary infrastructure like electricity, better water, schools, medical centres, education of illiterate mothers how to bring up their children, teaching the women trades like tailoring and men carpentry and so on. In the process there is construction activity and it gives boost to real estate.
‘Teach India’ is another milestone in the process of educating street children. Help from social workers and voluntary participation from experienced men and women and even collegians to teach the less fortunate gives a boost to education. In many parts of India, especially in the cities we find groups of street children under shady trees, being given elementary education and surely this is going to add to the ranks of the lower middle class in due course. This again will give rise to an emerging, aspiring generation that will create demand for housing and hence a boost to real estate.
Hence I reiterate that the housing boom in India and the subsequent rise in real estate prices has come to stay as the average age of the emerging working class is in early thirties. They say what goes down subsequently comes up and we are on an ascending cycle phase, with a great effort from the people inspite of corruption and scams everywhere. Hail India.