That's realty

TORCH-LIGHT

As an Indian, it leases me no end to note that while most economies worldwide have been struggling to maintain their growth rates, the domestic economy has been resurgent.

The recent years have been witness to increasing income levels and accompanying aspirations as well. Not only has there been a drop in the average age of tax contributors, there has also been a marked decline in the average age of property owners.

Real estate - in the form of land or actual tangible structures - has always been considered to be an important goal of an Indian income earner. The concept, albeit ages old, still holds true, with only some minor variations. Acquisition of property is given a great amount of weightage for the following reasons - (a) a stable investment avenue, and (b) potential for steady value appreciation (dependent, of course, on locational factors). These factors, accompanied by centrally sponsored tax incentives for investments in housing property, have helped establish a marked swing in the demand for real estate in each of the metros in India as well as most of their satellite townships.

The real estate segment of the Indian economy has undisputedly been in the throes of a boom. This can be attributed to several contributing factors. The growth potential of the real estate sector has always been high given that the demand for land is growing while the supply is limited.

However, this has also been enhanced by factors like the growth in the middle-class population, rising job opportunities in the metros, the emergence of second-tier cities as favoured business centres by IT and IT-enabled services sectors, the rise in disposable incomes, easy availability of loans at affordable interest rates and easy terms of repayment, attractive tax advantages for housing loans, good price appreciations and better prices of cement and other building materials which have given an impetus to the construction industry.

A further fillip was provided to the realty sector by the proposal to allow 100 per cent foreign direct investment (FDI) in the segment. It is now estimated that foreign investment to the tune of Rs 4,500 crore will flow into the Indian construction industry annually.

Significantly, the Reserve Bank of India (RBI) has raised the risk weight on real estate exposure and this is expected to give way to a 2 per cent rise in property prices in the medium term. The hike in risk weight for lending to the real estate sector has been to the tune of 125 per cent against the existing 100 per cent. This will result in banks charging higher rates of interest and also offer loans only to credit grade projects.

It must be noted that the boom in property prices has not been restricted to big cities alone. Smaller towns and suburbs of large urban centres have also posted sharp upswings in real estate prices. The reason for the same being the gradually growing trend of big corporates setting up bases in these areas.

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.

Let us now take a tour around India's mega-cities and check out the real estate scene therein.

Mumbai

The financial capital of India has clocked the highest real estate prices over the years. Known as the city of dreams, Mumbai attracts lakhs of people from various rungs of society each year. Naturally, this gives rise to a huge demand for housing which in turn ensures that real estate prices remain high. It goes without saying that prices differ from place to place within the city.

Certain areas which are considered prime locales command a substantial premium, taking property prices to dizzying heights. TDR (territorial development rights) is a concept which has taken Mumbai completely in its sway and throughout the city one finds buildings growing vertically. In other words, existing structures are being taken over by builders and fresh floors are being added.

Bangalore

The information technology capital of India has been witnessing frenzied construction activities. The city has been recording an annual real estate disbursement to the tune of Rs 4,000 crore. Notably, the city has posted a net absorption of about 4.7 million square feet of commercial real estate in the first half of 2005 alone.

With the country expected to open up the real estate sector to FDI, various foreign investment companies and private equity funds are looking at this city with great interest and this is bound to impact the market positively.

Chennai

The city was ravaged by the tsunami in December 2004. However, stoic as the human spirit is in India, it has put the memory on the back burner and proceeded on. With stricter norms having being enforced in the city, there are no longer buyers to be found for unapproved land.

Resultantly, property prices to the south of the city have begun to crawl upwards by 5 to 10 per cent. Even the coastal suburbs are said to be recording a slow and steady upward march in property prices. On the other hand, prices of constructions on unapproved land have taken a tumble post-tsunami and further more after the tremors in March 2005.

Kolkata

The former business capital of India is again breathing fire. The economic boom which is slowly taking the city into its sway encompasses most of the sectors, and that includes the property segment at the forefront. After a decade long lull, construction activity in Kolkata is at an all-time high.

The same has been attributed to the many information technology (IT) parks that are being set up in the city and the same is touted to soon take the city into a flurry of enhanced economic activity. The city is now being promoted as an investment opportunity to non-resident Indians (NRIs), and domestic and international investors.

Almost all residential constructions coming up in and around Kolkata and its suburbs are sold out. IT and commercial spaces are changing hands at unheard of prices in the city.

New Delhi

The Indian capital, too, has seen a surge in property prices. However, most of the bigger construction activities are taking place more in satellite areas of Delhi rather than in the city itself. Over the years, townships such as Noida, Faridabad and Gurgaon have witnessed furious construction activities and prices have been surging.

The concept of self-contained complexes is catching up in Delhi and builders are offering amenities such as pools, gardens, jogging tracks, health spas and round-the-clock security. Construction activities are on at full swing with projects in various stages of development at places where there is enough open space.

There is also the change in mindset whereby people do not mind travelling to work from the suburbs like in Mumbai. Industry experts expect the boom in the real estate sector to continue for another half decade or so.

The economic boom in India is well reflected in its booming real-estate market. The strength of this boom lies in the fact that there seems to be no foreseeable let-up in the demand-supply gap, notwithstanding the inevitable price corrections that will occur from time to time.

(The author heads Lotus Knowlwealth, Mumbai, and can be contacted at ceolotus@hotmail.com.)