BOOMING REAL ESTATE IN INDIA

With buildings getting taller and roads getting widened day by day bangalore real estate values are also touching greater heights. Like the equity markets there is also a boom in the real estate markets. The prices of the property in India have almost grown approximately by 25%. To push this fact further a sprawling apartment on one of the upper floors at the NCPA building at Nariman Point in Mumbai changed hands for Rs.63000 a sq.ft or over Rs 21 Crore, the flat being about 3475 sq.ft in size. When bookings for the upmarket building began in the early 1990s, the rate was round about 7000/sq ft. But at the peak of the property boom in 1995-96 premium apartment blocks were sold at 30000/ sq ft. These however are not a true indication of Mumbai’s residential property market, but it certainly is an indication of soaring demand for properties in Mumbai or else where in India and the willingness to go with it of the people to pay such hefty prices. The demand this time is real and is fuelled by macro economic attributes rather than the erstwhile phenomenon of concentration of economic power with a select few (as in the early 90’s). The opening up of sectors such as media, software and also to mention the job opportunities with call centers/BPOs has enabled young men and women in their early twenties to own a home, thanks to bank assistance. The below given chart shows the prices of land in Mumbai.

Acquisition of property is given a great amount of weightage for the various reasons be it for a stable investment avenue or it’s potential for steady value appreciation (locational factors). With the tax incentives for investment in housing property given by the Central Government have helped establish a rise in the demand for bangalore real estate values in each of the metros in India as well in the remote rural areas. Also the rise in disposable incomes, easy availability of loans at affordable interest rates, attractive tax advantages for housing loans, better prices of cement and other building materials have given impetus to the construction industry.

Also adding to this growth are the FII Investments, Huge corporate profits and collection by mutual funds are at an all time high. This has turn into healthy growth in demand for high end properties too. Also the fact that the salaries are at an all time high, irrespective of the industry has made it possible for the people in mid to senior management to upgrade their lifestyle overnight and move into homes costing in excess of 2 crores. With the demand for property rising at a brisk pace it is bound to put pressure on the supply in the every given location. Also various factors like reduced interest rate on home loans, tax benefits, demand for campus facilities by a host of MNC have also led to the development of the Real estate. Prestige group, a leading property developer in Bangalore recently announced that it had successfully completed construction of 3 million sq.ft of space since the beginning of the year and 20% of these is constituted only by commercial plots. It has it hands full with projects totalling upto about 2.65 million sq.ft. Terming this mood as “positive”, Irfan Razack , the managing director of the Prestige group, observed that: “The bangalore real estate values market is vibrant largely contributed by various factors”. Some of the key projects in the pipeline includes PVR Cinemas, Westside, Landmark, McDonalds, Pizza Hut & Fabmall among others. This are the clear indication of the huge FII Investments and their confidence in the Indian markets.

In case of Mumbai TDRs were used initially to compensate plot owners whose development right was restricted due to some public programmes like widening of roads etc. More recently they have been used in case of Slum Redevelopment where additional

development rights could not be consumed on a plot due to over density reasons. TDR (Territorial Development Rights) which has been conceptualized over 16 years has taken Mumbai completely in it’s sway and if one takes a tour of the city should not be surprised to see Manhattans coming up. To explain it in easy words the existing structure are being taken over by builders and fresh floors are being added. These rights which were priced at around Rs.850/sq.ft in the central suburbs of Mumbai are currently priced at Rs.1500/sq.ft a staggering increase of 80%. The financial capital of India has clocked the highest bangalore real estate values over the years.

Moving over to Bangalore - The IT Hub of India, the real estate market has made some interesting stories recently. Land on the outskirts of Bangalore that was selling at mere Rs.4/sq.ft is now priced at around Rs.90/sq.ft. Prices which started to drop in 1995 are now beginning to show signs of growth again. Prior to 1991 it was unimaginable or can say it was next to impossible to find a Pepsi or Coke in India, but after the policy changes made by government in 1991 the doors began to open and soon foreign investment started kicking in. Also the fact that NRI (Non Resident Indian) community got involved in investing in India and these people find Bangalore to be a good place to invest in real estate. Just the reputation that Bangalore has for software development and other technology related industries has left many foreign investors licking their hands to invest here. It has a well deserved reputation for it’s pleasant climate and beautiful gardens and trees, perhaps this is the reason why many Indian and foreign software companies are located at Bangalore. Real estate investors and real estate developers in Bangalore have really been on a wild ride.

Rising prices are straddling both residential and commercial spaces and hitting new markets. Industry estimates indicate that as much as 1.2 million sq.ft may be required in the next 12 months to meet the demand for upscale commercial space. In Pune , for instance, commercial rental values have shot up by 20 per cent in the last 5-6 months as the city has caught the eye of IT businesses and call centres. However a reverse trend can be seen in Kolkatta where cheaper lease rentals (15-20 per cent lower than Bangalore) are pulling in IT and call centre companies. Spurred by the growing demand, bangalore real estate values developers are pushing hard by kicking of new projects or buying fresh land wherever is available.

How different is this boom from the 1996 bubble that burst. Developers say the new boom is driven by the end-user sales, increase in the number of developing software companies and more so with the outsourcing business i.e BPO/call centres coming to India. Experts also feel that this boom is more sustainable compared to mid-nineties when it was just monetary in nature and also point out that the big difference unlike in 1996 is no shortage of land availability ensured by the growth of suburbs. But most experts agree that speculators are back in business in the last six months. Sanjay Verma, joint managing director of the Cushman and Wakefield estimates that about 20% of the sales currently are speculative. He says there is real demand only in the major metros because there is nothing else left to buy there.

With this trend expected to sustain over a period of time, property prices are bound to surge. This is accompanied by chronic shortage of housing for the ever increasing population. So the demand should ensure that property prices continue to rise at the current rate of around 10 per cent per annum. The real estate segment of the Indian economy has undisputedly been in the throes of a boom.