Words: Ramesh Nair, COO – Business & International Director, JLL India
At the best of times, investing in commercial real estate requires forethought, research and planning. When tracking down the ideal commercial property for business operations or for investment, various factors such as soundness of location, the health of the local job market, current and future infrastructure initiatives in an area and migration patterns into a city play important roles. While the broad guidelines above hold true for any commercial property investment, prime commercial properties require even greater insight and investigation.
Obviously, investing in a commercial property in a prime location can have multiple benefits:
- It is easier to find tenants for properties in prime locations than in low-demand locations. Finding tenants quickly is important, since it plays a role in yield calculations. Leaving a commercial property vacant for extended periods will result in loss of income.
- Banks are more willing to give loans to commercial projects in prime locations, since there is very low likelihood of capital loss
- It is easier for employees to travel to work every day – a major factor, considering that employee retention ranks very high on employers’ list of priorities today
A prime office space purchased for self-use is arguably the soundest business decision any firm can make. Apart from the fact that such a property is extremely convenient to commute to, a commercial office in a prime location increases a firm’s visibility and reputation. It is a visible demonstration of your firm’s commercial worth to your clients, partners and other businesses. Also, the capital appreciation of a prime office property reflects very favourably on a company’s balance sheet.
Both in terms of business potential and returns on investment, the highest value lies in prime office spaces. Invariably, the ‘prime’ value in commercial real estate is vested in the location, which leads to the question – how does one define a ‘prime location’?
The factors that make a location prime are a function of its overall accessibility within the city, the quality of infrastructure that supports it, the saturation of high-profile companies represented there and the overall quality of buildings in the sub–market. To determine if a location is prime, investors need to examine the following parameters:
- Can the office property be reached easily via all modes of transport?
- Is the office property close to major commercial hubs?
- What is the demand-supply gap?
- What is the tenant profile of the location? Which industries prefer it and what are their growth potential?
- Does the location have good social infrastructure such as restaurants, malls, shopping centres etc.?
- Is the location well-planned (e.g. BandraKurla Complex in Mumbai or has it grown with increased requirements (e.g. Nariman Point, which was reclaimed from the sea?
- Are there a lot of commercial space transactions happening in this location?
- Do the buildings have a modern look and feel (e.g. glass façades)?
If the answers to most of these questions are positive, then the location is a prime one.
The next aspect to determine is whether the project and property meet ‘prime’ criteria, as well. There are over 30 important technical specifications that a commercial property must meet, and this needs to be verified by an expert. If the project is under construction, the buyer or investor must be fully updated on the construction risks, the developer’s track record, etc.
The project and property must also be assessed for:
- Repositioning potential
- Refinancing potential
- Refurbishment potential.
Finally, prime locations and prime commercial properties in them naturally come with prime prices. Since returns on investment are important, one must determine whether the location will also offer good capital appreciation.
Regardless of whether the purpose of buying a commercial property is self-use or investment, using the services of a reputed real estate consultant is a key factor for success. Expert, research-driven advice can ensure that one is not buying into a property or location which has or will have major drawbacks high vacancies and result in low returns on investment.
Words: Nirav Kothary, Head – Gujarat Operations & National Director – Industrial Services, JLL India
The state of Gujarat is one of the most industrialised states in India, with a well-earned reputation of being very investor-friendly. The state has a proven track record for attracting high volumes of investment, becoming the most favoured investment destination in India on the back of its sound economic policies and pro-active governance. The Vibrant Gujarat Summit has acted as an effective catalyst for Gujarat’s journey of industry growth, and the 6th edition of Vibrant Gujarat in 2015 saw as many as 21,304 Investment Intentions signed.
The Gujarat Government is developing the only IFC (International Finance Centre) in Gujarat – GIFT City (Gujarat International Finance Tec-City) is an under-construction central business district to be built on 886 acres of land. Additionally, Dholera SIR, the Gujarat affordable housing mission, the Kalpsar Project, PCPIR, DMIC, DFC, High-Speed Rail Corridor and various other mass transit projects across the cities are initiatives to boost the growth of Gujarat’s urban and industrial sectors.
Gujarat is home to various cities such as Ahmedabad, Vadodara, Surat, Rajkot, Jamnagar, Vapi, etc. which are nodes of urban development in the state, are considered independent growth centres with their own identities, and attract population from across the country.
Ahmedabad, the seventh-largest metropolis of India, is Gujarat’s pharmaceutical and textile hub. Many infrastructure projects like Sabarmati Riverfront, Bus Rapid Transit System and the Ahmedabad–Gandhinagar metro – underway or already operational – will eventually boost the realty sector of Ahmedabad.
Major residential projects are coming up in the western part of the city, in areas like Vastrapur, Satellite, Prahladnagar, Bopal, Vaishnodevi and Bodakdev. Other areas of the city have also witnessed significant residential supply over the last few years. The upcoming and most active areas are Bopal, Prahladnagar, Vaishnodevi, Raysen (Gandhinagar) and Ambli Road, which have quality residential supply of various unit configuration. The price range of the inventory is INR 3000 to INR 8000 per sq.ft.
The major supply of good quality commercial real estate is in the central as well as western region. SG Highway, Ashram Road, CG Road, Sindhu Bhavan Road and Corporate Road have witnessed large commercial projects offering strata sale options. The capital rate for commercial estate ranges between INR 5,500-7,500 per sq. ft., while the rentals vary from INR 35 -55 per sq. ft. The major occupiers are financial institutions, corporate and service sector offices.
The more significant supply of high street as well as organised retail spaces is concentrated in the western part of the city. CG Road, Ashram Road, SG Highway and Prahladnagar are the dominant high street retail locations, while malls are located in the Vastrapur, SG Highway and Satellite areas. The capital rates for retail spaces ranges between INR 12,000-22,000 per sq. ft., while the rentals vary from INR 80 -150 per sq. ft
A large number of industries related to textiles, chemicals, machinery, metal products, pharmaceutical, engineering, plastics, electrical appliances, electronics, passenger cars, etc. are located in the district. Well-developed infrastructure, a prudent industrial policy of the State Government and a peaceful industrial atmosphere have been vital factors to contribute to the industrial growth in the district.
Sarkhej-Sanand Road, Bavla–Changoder, Kadi-Kalol, Vatwa, Narol and Chatral are industrial centres of Ahmedabad which have witnessed major growth post 2001 due to favourable industrial policies. Many large multi-national industries have established their plants in these locations.
Apart from growing business sector and rapid industrialization, there are other growth drivers such as GIFT city, the Delhi-Mumbai Industrial Corridor (DMIC), the new affordable housing policy, newly-revised DCR with enhanced FSI, the Ahmedabad–Gandhinagar Metro and Transit-oriented Development (the successfully-running BRT and upcoming Metro Rail Project). These projects will significantly impact the real estate market of the city.
The third-largest city of Gujarat state has the advantage of strategic location in terms of connectivity with Ahmedabad and Mumbai, and being the geographical centre of the state. The prominent corridors are Old Padra Road, Gotri Road, Waghodia Road and Ajwa Road. Development on the north and south sides is restricted due to the presence of industrial areas.
The established residential areas in city – Alkapuri, Fatehgunj, Gotri, Gorwa, etc. – are mostly centrally located. Upcoming areas include Gotri-Sewasi, Old Padra Road and Ajwa Road. The capital rate for residential apartments in the established areas ranges between INR 2,100-2.900 per sq.ft., and higher for luxury developments.
Vadodara’s commercial sector comprises of offices of financial institutions, academic institutes and branch offices of different enterprises. There are few existing commercial complexes and relevant supply is limited as of date. Most commercial developments are on RC Dutt Road, Old Padra Road, Gotri Road, etc.The capital rate for commercial spaces ranges between INR 2,500-5,000 per sq. ft. Occupiers are manufacturing companies having branch offices, financial institutions etc.
R C Dutt Road, Race Course Road, Gorwa and Old Padra Road have emerged as the prime retail areas of the city. A majority of national and international brands operational in the city are primarily located in these regions. The capital rate for retail spaces ranges between INR 8,000-12,000 per sq. ft. for high street retail.
Vadodara has been driven by industrial developments, especially in sectors like engineering machine tools, cotton textiles, glass, pharmaceuticals, chemicals, petrochemical and fertilizer industries. Major industries are located in north, south and eastern parts of the city. In areas like Manjalpur, Makarpura and Waghodia, Vadodara also has also been attaining growing importance in the knowledge and service based industries like IT/ITeS and biotechnology.
Various industrial initiatives and its strategic location on the Ahmedabad-Mumbai corridor are major growth drivers for the city. Apart from these, the provision of NISG (Nodes to Induce Specific Growth) in the development plan, BRTS and industrial development of eastern part (mainly on NH8) can be considered as future growth drivers of the city.
Surat is distinctly divided into two parts by the River Tapi. The eastern part of city is large in area and has traditional settlements which comprise of the railway station, the old city and textile and diamond industries. The western side of river is emerging, and major real estate developments are happening in areas like Vesu Road, Pal Road and Dumas Road.
The established residential areas of the city are Adajan, Ghod Dod Road, Dumas Road, Varacha, Udhna Road, etc. The real estate market of the city has witnessed considerable activity in the past few years. Prime residential areas in the city are Athwa Lines, Ghod Dod Road, Dumas Road and Adajan. The emerging / developing residential areas in the city are Vesu, Puna-Kumbharia, Ved Gam and Bhathar.The capital rate for residential apartments ranges between INR 4,000-8,000 per sq. ft.
Varacha Road, Parle Point and Athwalines have a good concentration of commercial establishments. This micro-market houses the textile market of the city, along with tenants from the BFSI sector, business professionals and corporate groups. The upcoming secondary business district is the Piplod–Dumas Road area. With the growing urbanization of the city, its commercial presence is expanding to this corridor.
Adajan, across the river Tapi, is also emerging as a commercial hub with new commercial developments coming up. This area is expected to develop further when the proposed new bridge connecting the Pal Hajira Road to Dumas Road is complete. The capital rate for commercial spaces ranges between INR 4,500–8,000 per sq. ft.
The established retail areas in Surat are Athwalines, City Light Road, Adajan and Dumas Road, where major high-street and retail malls are located. The capital rate for retail spaces ranges between INR 9,000 – 25,000 per sq. ft.
Surat’s economy consists of textile manufacturing, trade, diamond cutting and polishing industries, intricate zari works, chemical industries and the petrochemical and natural gas-based industries. The Hazira Industrial area and port is situated in the western side of the city, within the Surat Metropolitan Region. The establishment of large industrial giants in the Hazira Industrial Complex has changed the industrial scenario in the region.
Surat houses established diamond and textile industries which will continue to add to the growth of the city. Additionally, DREAM city (Diamond Research and Mercantile city) on Khajod Road, its strategic location in vicinity to Mumbai, BRTS, the Tapi Riverfront project, the proposed mega tourism project near Suvali, the container terminal proposed near Hazira and the fact that Surat is now part of the Government’s 100 Smart Cities program will be future growth drivers of the city.
Kalavad Road, Jamnagar Road and the 150ft Ring Road are the upcoming destinations for residential development in Rajkot. The city features residential apartments priced in a wide range, from as low as INR 2,500 per sq ft to as high as INR 9,500 per sq ft in quality products which include centralized air conditioning and high-grade flooring and fixtures.
The major commercial as well as retail areas of Rajkot are Yagnik Road, Kalawad Road and Race Course Road. The outright sale price of commercial spaces varies between INR 3,500-6,500 per sq. ft. and for retail spaces, the range is INR 10,000-14,000 per sq. ft.
Manufacturing is the city’s major industry, with most activities concentrated in the two main industrial estates at Aji and Bhaktinagar. In the past, Rajkot’s economy concentrated around the establishment of cloth mills, while the current trend of industrial growth is towards the engineering and auto ancillary sectors.
Apart from automobile and ancillary industrial development, various infrastructure initiatives such as BRTS, the newly-revised DCR, the fact that Rajkot is the activity center of entire Saurashtra region and its proximity of smaller towns, which are future growth drivers of the region.
Words: Anuj Puri, Chairman & Country Head, JLL India
Known to be a market driven by end-user demand, Hyderabad has never seen runaway price escalations unlike some of the more speculative markets in India. The city’s residential market witnessed a price appreciation of 5.2% (y-o-y) in 2015 and is expected to see a 4% price rise in 2016.
A well-known IT hub, Hyderabad has been witnessing a strong demand for office space for some years now. Resultantly, the demand for homes in the city has also grown over the years – barring the period of political turmoil.
At the sub-market level, in 2015, western suburbs (HITEC City, Kukatpally, etc.) saw the highest appreciation at 15.4% followed by the northern suburbs (Bachupally, Shamirpet, etc.) and eastern suburbs (Uppal, LP Nagar, etc) – both at 4.7%. The prime sub-market (Banjara Hills, Jubilee Hills) followed at 4% and finally, the secondary sub-market (Begumpet, Secunderabad) saw a price rise of 2.3%.
Both developers and buyers are highly bullish on the western sub-market, which is the major driver behind Hyderabad’s residential demand-supply dynamics. Western suburbs contributed the maximum share to total launches and sales’ movement in the city. As this submarket saw large-scale expansion as well as fresh leasing by IT/ ITeS firms and other corporates, attractive returns could be expected in the upcoming housing projects. This has led to prices going up in this area.
Most of the recently-launched projects in the western sub-market are expected to address housing demand in the next 2-3 years, which in turn will be triggered by the heavy employment generation anticipated here. On the other hand, the prime and secondary sub-markets witnessed moderate appreciation due to their higher land costs, which was also complimented by the ongoing metro rail development – the first phase of which will commence in 2H16.
The upcoming metro line led to price appreciation in the northern and eastern submarkets (only apartments) as well. Capital value appreciation of villas in the northern sub-market remained stagnant as only a few projects were launched and the demand remained tepid among buyers.
Certain pockets in the western sub-market like Kondapur, Narsinghi, etc. have outdone others in the number of new project launches due to locational advantages. There is a possibility of price rise slowing down in the western suburbs, given such a large volume of committed development being concentrated in one location alone. However, as established developers with a good track record operate here, there is only a slight possibility of demand falling down drastically.
Words: Ramesh Nair – COO – Business & International Director, JLL India
A sign of any residential market’s increasing maturity is evidenced by gentler price appreciation – a process which has been very much in evidence in the country’s financial capital. The average residential property prices in Mumbai and suburbs saw an appreciation of 3.3% (y-o-y) in 2015 versus 7% in 2014. The forecasted increase in residential property prices in 2016 is expected to be 6%. While a price rise of 6-7% (y-o-y) was predicted for 2015, the actual increase should come as a pleasant surprise to home buyers.
Unlike the pre-global financial crisis (GFC) times – when prices saw double-digit growth (y-o-y) across the city and suburbs – the market has seen a rather subdued growth in prices over the last couple of years. It demonstrates Mumbai’s maturing residential real estate market. This is definitely good news for the scores of end-users who wish to own a house in the city that has India’s priciest real estate.
At the sub-market level, south-central Mumbai and the eastern suburbs saw the maximum appreciation at 4.3% and 4% respectively, followed by north Mumbai and western suburbs at 3.9% and 3.5% respectively. Outside the city and suburbs, Thane saw a 3% appreciation in capital values, while the figure for Navi Mumbai stood at 6%.
This, however, does not mean that Navi Mumbai is doing better than Mumbai – there is a lot of unsold inventory in many of its pockets. It is only in select precincts that Navi Mumbai is witnessing good demand. A look at the respective sales rate (as of 4Q15) also reveals that Mumbai did better at 10.1% than Navi Mumbai at 5.5%.
The 2015 figure also reflects how developers have shown unprecedented flexibility and kept costs stable by absorbing some of the increased holding costs. Some home buyers reciprocated by jumping the fence and buying houses at attractive prices. Moreover, developers started to gauge market dynamics with greater precision and adapted their product offerings as per changing demand.
Smaller units are in demand lately due to their relatively affordable ticket sizes, and many builders are now offering them even in premium locations. Given the rather sluggish demand for larger homes due to unaffordability, the headroom for price appreciation in this category has reduced. A JLL study in 2Q15 had showed that 69% of the apartments in the city and suburbs were priced above Rs 1 crore. The number came down to 65% in 4Q15, showing how developers are trying to bring in affordability.
|Mumbai Residential Price Increase (y-o-y)||2014||2015|
|Mumbai (including Thane and Navi Mumbai)||5%||2.8%|
|Mumbai (excluding Thane and Navi Mumbai)||7%||3.3%|
Words: A. Shankar, National Director & Head (Operations) – Strategic Consulting, JLL India
Without smart citizens, the smart city proposals will hold good only for documentation – not implementation
Traditionally, initiatives like smart city are indicators of developed economies. A developing country will become a successfully developed country when its citizens also upgrade and update themselves. In India, the smart city initiative is in full swing, with the top 20 smart cities stepping into the next stage of implementation. The smart city mission focuses on the technology overlaying the basic infrastructure that will be built in right places and in sufficient quantities in the cities.
However, the most vital aspect – the citizens who live and work in these cities – must be integral to the implementation process as well. The success of Indian smart cities is firmly vested in Smart Citizens.
A smart citizen is one who has civic sense and respects the law. Some of unanswered questions about Smart Cities as far as citizen participation is concerned are:
- Will people obey the traffic rules, drive within speed limits and desist from jumping signals?
- Will they put pedestrians first and leave space for them?
- Will they respect elders and give way to senior citizens?
- Will they park their vehicles at designated lots and not anywhere else?
- Will they maintain hygiene not only their flats but also in the common areas of their apartment complexes?
- Will they throw garbage only in bins and practice source segregation during garbage disposal?
Awareness about smart solutions plays crucial role in developing true smart citizens. Though the local authorities of our smart cities will make substantial investments in smart solutions, they cannot skimp on efforts to raise citizen awareness on the efficient usage of these solutions and services.
For example, energy saving cannot be achieved merely with smart meters in the home. In order to reduce energy consumption and save money on bills, consumers need to not only monitor their energy use but also make an effort to change the whole family’s daily energy usage behaviour. This would include shifting to energy-efficient appliances, reducing TV time and switching off electrical appliances when not in use, especially during peak periods.
A smart city connects people with their environment and city to create more efficient and optimal relationships between available resources, technology, community services, and events in the urban fabric. This connection is a tool that links the implementation of the smart city and the proposed technology.
JLL India’s Strategic Consulting team advocates citizen participation as the major success factor in implementing the smart solutions in a city, and successfully demonstrated this while preparing the proposal for Bhubaneshwar and Chennai (among the top 20 smart cities, with Bhubaneshwar ranked #1). The aspects to be followed to make the Smart City mission successful through Smart Citizens across India:
- Citizen participation: Most of developed cities ensure that citizens participate in every aspect from cleaning to safety requirements. Citizen participation ensures citizen satisfaction, which in turn ensures maximum efficiency of the proposed technology. Good governance is always measured by the extent to which it involves its citizens in the overall decision-making process.
In an increasingly complex world, citizens’ inputs are a critical resource for policy-making. Good decision-making requires the knowledge, experiences, views and values of the public. The participation of citizens has become simpler through online Government portals. Such participation reduces the conflict of opinions and makes implementation easier. Smart citizens need to be fully inclusive, innovative and sustainable.
- Joint engagement of citizens and government: Political will and the technical capacity to engage citizens in policy making, or providing accurate data on government performance, are the hallmarks of developed democracies. Though making policies for a city’s growth and comprehensive development is important, a smart city acknowledges that policies alone are not enough to reach their goals. It solicits support from its citizens and local stakeholders to make this happen.
Citizens are called upon to jointly take responsibility and engage in the process. Building social capital is essential to ensure that smart citizens acquire the capabilities and skills to meet the challenges of the future. Only then does a city become ‘future ready’.
- Technology support: Technology has given the world new dimensions; globally, citizens are becoming technology-oriented in every aspect concerning their comfort, convenience and safety. Technology support has become an essential factor for the growth of a city and its citizens.
The use of innovative information and communications technology (ICT) applications, smartphones and smart fixtures are all part of the process of making smart citizens. When city dwellers use the Internet to make smarter, more informed choices, cities become smarter too. The right approach towards the Smart City mission involves a balance between technological and non-technological approach.
The ICT platform is the best tool to bridge the current gap between the Government and citizens. The Smart City concept necessarily emphasizes the inclusion of ICT solutions as part of its entire proposal. Going forward, such a system will be robust and sustainable. There are lot of apps and online platform available to facilitate citizen participation, some of which are the Swachh Bharat Clean India mobile app, IPaidABribe.com, Safecity India, Next Bengaluru and Kumbhathon. Cities become more dynamic by the use of such platforms.
Already, the Government has launched the necessary tools to help citizens participate proactively in Smart City mission. These include street campaigning, education programmes in schools and colleges, media advertisements and hoardings, consultation programmes with Government officials, online participation etc.
MyGov.in is an excellent example of ICT integrating and increasing the efficiency of citizen engagement. All policy-level decisions will directly involve citizens’ opinions. This platform will make the system more transparent and act as an interactive forum between citizens and the Government. It allows citizens to post their comments and suggestion on any proposal and also includes different types of participation (i.e., voting, raising public awareness, advocating for an issue, monitoring political processes) that will best promote democratic development in different contexts. It is a technology that is created to purposefully connect citizens’ groups and amplify their voices.
In addition, private technology developers are continuously exploring smart technologies from smart mobiles to smart furniture and appliances, marketing them at affordable prices to reach to all categories of people. This not only helps in cost saving but also connecting with globally-employed smart technologies. Moreover, specially formed societies in residential colonies and corporate companies across India are now taking up initiatives like cleaning the neighbourhood, roads and water bodies, tree plantation, electronic waste recycling, etc. This is the kind of motivation required of citizens to participate in taking the Smart City initiative.
To ensure a greater share of online participation channels such as through smartphone applications and social media, municipalities needs to invest in smart people – not merely in smart technologies. Only then will tools like smartphones and mobile applications have the potential to revolutionize city governance and contribute to the making of people-centric Smart Cities.
- Smart cities need to have inclusive, innovative and sustainable smart citizens. Smart cities are directly proportional to smart citizens
- The smarter a city is, the greater is its dependence on equally efficient, smart citizens. Without smart citizens, the Smart City proposals will hold good only for documentation – not implementation
A city is a reflection of how its citizens perceive it, and a smart city actually is how a city behaves as an innovative ecosystem. There is no such thing as a standard template or a magic all-in-one smart city application. Allowing citizens to become active in the process of city design and building enabling ‘bottom-up’ innovation and collaborative ways of developing systems out of many loosely-joined parts will help in implementing Smart City successfully.
Words: Rohan Sharma, Associate Director – Research & Real Estate Intelligence Service, JLL India
On April 18 2016, Noida (New Okhla Industrial Development Authority) completed four decades since its formation. Today, it stands testimony to the fact that planning with a vision and creating infrastructure as the base to spur development generally has a positive outcome.
40 years ago, Noida was set up as an industrial town to encourage small industries and as an outreach to Delhi’s lack of space for industrial areas. The idea was also to create a wider urbanised sprawl to support the growing needs for space in Delhi which had come about due to increase in inwards migration and spiralling development levels. At the time, no one had envisioned that it will become one of the fastest-growing cities and an engine for growth for the state of Uttar Pradesh – and a vital cog in the National Capital Region’s development wheel.
The planning behind the city has stood it in good stead. As the urban sprawl around Delhi grew, Noida began creating individual sectors and setting in place development regulations and mechanisms to clearly demarcate industrial and residential areas. This demarcation has helped the city grow in a planned and homogeneous manner. With its row-housing colonies and cooperative housing societies, Noida was soon leading the charge of residential housing growth and has made vast leaps forward in the last decade.
An independent Authority to manage the city, its finances, planning and growth has led to a model where organized development and infrastructure capacity building is given top priority. The city is now quoted as an example of how newer cities should plan for future development, and of forward-looking infrastructure deployment and proactive policy creation. One of the important aspects in Noida has been that land there has always vested with the city development authority, and that release of land has been in sync with the master planning exercises undertaken earlier.
The city first grew inwards and thereafter began developing more radially outwards. This is manifest in the development of residential areas in the city, and along the road links with Delhi, before newer areas were opened up along the Noida-Greater Noida Expressway once the road project was well underway.
Property Rates Growth Over The Years
The earliest recorded property prices in Noida were Rs. 100-150/sq.mtr. for residential plots in 1970s through to the 1980s, when development became more row-housing oriented. Gradually, multi-storeyed houses were introduced through cooperative housing societies. These were affordably priced at Rs. 1,200-1,700/sq.ft. in the 1990s, leading to the new millennium.
Over the next decade, prices jumped by nearly 60-70% before the financial crisis led to a decline and as further newer areas along the Noida Expressway were added to the residential inventory. Property prices in Noida were largely in the Rs. 3,000-3,500/sq/ft. range in 2010.
With more projects nearing completion, average prices have now reached Rs. 5,200–5,600/sq/ft/. Projects by reputed developers whose projects have higher specifications and amenities are currently selling slightly above this range. Similarly, sectors which are centrally located in Noida have apartment prices in the range of Rs. 6,000-7,500/sq/ft. However, premium row housing sectors are priced much higher and are currently priced in the range of Rs. 13,000-18,000/sq.ft.
Plot prices in Noida over the past forty years have jumped by an astonishing 800-1000 times if one considers the premium residential sectors of today. Using the plot prices of 1980 as a reference point, land rates jumped by 200 times over the next two decades, and thereafter have further grown by another 8-10 times over the past decade or so.
Outstanding Growth Drivers
While it already enjoyed good connectivity with Delhi, constant efforts have been made to improve and enhance Noida’s accessibility to the city, and to provide seamless movement for the perpetually growing vehicular traffic. The city is an important transport and logistics node on the North-West corridor, and also an essential IT/ITeS destination in NCR second only to Gurugram (previously called Gurgaon). It is the fastest-growing residential hub in NCR, and tremendous amounts of its lands have been brought under development over the last decade. From residential projects to integrated townships, commercial projects to swanky malls and mixed-use developments, Noida is throbbing with activity.
What is now visible is the impact of its exponential growth, with newer infrastructure projects being taken up on war footing. The existing road network is being constantly upgraded with the addition of bridges, culverts and underpasses to aid smooth traffic movement. The Metro has also zipped into Noida, connecting its commercial centre to as far as Dwarka with interminable links to other central and southern parts of Delhi. New metro links are being added to connect Noida with other parts of Delhi, serving the passenger load commuting to and from Noida every day.
Noida’s growth from sleepy village to industrial town to throbbing centre of commerce and development is not yet complete. Its journey continues as more residences, office developments and recreational projects get completed and more people come here to stay, work and unwind. Noida’s story of its ground-breaking, futuristic growth continues.
Words: Anuj Puri, Chairman & Country Head, JLL India
The RBI has announced a cut on the Repo Rate of 25 basis points, which is very much in line with market expectations. There was a narrow fiscal deficit during FY2016, and the recent Union Budget targeted a further narrowing of fiscal deficit for the current fiscal year to 3.5% of the GDP.
When fiscal deficit is high, there is increased pressure on the Government to borrow more from the market, resulting in upward pressure on interest rates. However, that will likely not be the case this year. In the recent budget statement, the Finance Minister slashed interest rates by 40-130 bps on various small savings schemes. When deposit rates are low, there is room for lending rates to come down without hurting banks’ net interest margin. This is a big plus in the current scenario where despite a 125 bps cut in the recent past, banks were reluctant to pass the benefit to end-users.
The latest inflation data for the month of February showed a steeper-than-expected slowdown in inflation to 5.18%. Also, food and oil prices have shown signs of remaining largely stable, giving hopes that there is no major risk to inflation in the coming months. RBI anticipates the rate to hover around a comfortable 5.0% mark during the financial year.
Given this macroeconomic scenario, almost all polls of economists conducted by major Indian media houses unanimously suggested a cut of at least 25 bps, with few economists even expecting a bolder 50 bps cut.
Implications for the real estate sector
Real estate, along with automobile and banking, is an interest rate sensitive sector, and definitely benefits from interest rate reductions. While on one hand, developers are doing all they can to ensure that homes become more affordable to a larger set of buyers, small steps towards rate cuts by RBI will help banks to attract genuine end-user home buyers. Given that the inflation projection for the near term is also favourable, buyers can rest assured that rates are not going to rise in the near to medium term. On the contrary, they can expect few more rounds of rate cuts going forward, given that there are no untoward macroeconomic shocks expected.
The past few months have worked well for real estate sector. A lot of positive news came during this period:
- Taxation related clarity on REITs paved the way for a new investment cycle
- The Real Estate Regulatory Bill, which will help transparency in the sector to rise in the near-to-medium term, was passed.
- The recent press note on FDI released by the DIPP clears the air around ecommerce and Retail, thereby helping brick-and-mortar retailers to come on a level playing field with ecommerce giants.
- Tax incentives announced in the budget for affordable housing
Also, with the mechanism of determining lending interest rate switching towards MCLR (as enforced by RBI), banks can now be more adept in passing on rate cut benefits to borrowers, while also giving some clarity on the future course of interest rate movements – both of which will help borrowers to plan their EMI outgoings. This is definitely a good move towards greater financial transparency within the banking industry, and for home loan customers.
Words: Santhosh Kumar, CEO – Operations & International Director, JLL India
The information technology (IT) sector, which has dominated office space occupancy in India for almost a decade, is now finding it difficult to expand bases in metro cities or even consolidate offices in prime locations owing to the decline in vacancy levels and quality supply. Moreover, rents have also gone up due to diminishing vacancy levels.
This may make established IT companies – planning to expand or consolidate operations in the same city – uncomfortable. On top of that, the global scenario is exerting greater pressure on these firms to maintain a tighter control on occupancy costs and cost-competitiveness. This may prompt these firms to scout for alternate destinations that also have an abundance of skilled manpower.
Would this result into the emergence of new cities as latest office hubs? Too early to say as it would really depend on how many policies – that are very IT-friendly – these urban centres manage to implement, apart from attracting quality talent. It is no longer about a city’s lower rents alone. Infrastructure is another important factor for these firms.
Though infrastructure improvement (another major factor) is underway in many tier-III cities – and it is helping them get good connectivity to major metros – there is still much ground left for these cities to cover before they rank high on their attractive quotient for the IT companies and tech start-ups.
Cities like Chandigarh, Visakhapatnam, Vijayawada, Mysore, Kochi, Coimbatore, Tiruchi, Bhubaneswar, Ahmedabad, Gandhinagar and Jaipur offer lower rents today compared to Mumbai, Delhi-NCR, Bangalore and even Pune, Hyderabad.
Emulating the ‘Bangalore model’
Bangalore is the latest entrant in the tier-I club comprising Delhi-NCR and Mumbai. The city enjoys this status as a result of years of introducing and implementing pro-IT policies. When it first came on the IT players’ radar, it had some inherent qualities like low property prices/ rentals, a good number of technical education centres, vast availability of space to accommodate campus-style offices, and pleasant weather – all of which led to a big IT footprint developing here.
A proof of its fame came in 2015 when Bangalore made a debut in JLL’s ‘top-20 technology-rich cities globally’ and the ‘Asia-Pacific city investment intensity index’ (the index measures the volume of direct real estate investment in a city relative to its current economic size over a three-year period). The city’s growth has attracted many expats as well as start-ups.
Given that the economic outlook for India looks good and poised for strong growth in the years to come, it boils down to which city can manage to become more attractive for IT/ ITeS and start-ups than Bangalore, Pune and Hyderabad.
Words: Anuj Puri, Chairman & Country Head, JLL India
The passing of the long-pending Real Estate Regulatory Bill, which was being hotly debated and second-guessed for far too long, is an unequivocal victory for the Indian real estate sector. Its enactment as a law will almost single-handedly revamp the way this sector works across the board, from developers to end-users and investors, to lending institutions and government agencies involved in the buying and selling of property. It is by far the most decisive step the sector has taken towards transparency and reaching towards the kind of standardised processes, procedures and accountability guidelines that the industry requires to progress.
In December 2015, several amendments to the bill suggested by a select committee of Rajya Sabha had been accepted by the union cabinet. The amended bill has now become a full-fledged law and paved the way to setting up a real estate regulator.
The real estate industry welcomes the major reform that promises to bring in much-needed transparency and accountability to the rather opaque sector. It will create a much-needed consumer right protection umbrella for buyers of real estate, thereby increasing consumer confidence as well as creating lasting developer brands strong on quality and timely delivery of their projects.
As there will be strict punishment for errant developers as well as fines for project delays and faster redressal to consumer complaints, the problem of unscrupulous elements in the industry will be addressed. Norms on size of projects had been relaxed from 1,000 sqm to 500 sqm, and further reduction in size can be bought under the purview of the regulator by state governments.
A single-window clearance is needed now, without which there may be cases where bona-fide delays by developers may still result in an unfavourable penalty. The time taken to get many environmental, state-level and municipal-level clearances have afflicted developers for long. Without ensuring that the approval process is not delayed by civic agencies’ inaction or setting up a single-window system, the regulator may inadvertently add another layer to the longer processes already delaying projects.
The central government, on its part, has been working to streamline approvals as part of its focus on ‘ease of doing business’ and digitisation to achieve better transparency. This law will reduce volatility seen in this sector and build the trust deficit between both stakeholders – builders and buyers. RERA will provide a positive impetus towards achieving the housing dream while ensuring a level-playing field for developers and buyers.
With real estate having linkages to the largest number of industries, the incumbent government has succeeded against various odds and given Indian real estate its most valuable card. The bill is a verdict to end the age of information asymmetry, lack of accountability and unwarranted project delays, and marks the beginning of rising transparency, liquidation of assets – and, importantly, positive sentiment.
Words: Kapil Wadhawan, CMD, DHFL
This year’s union budget has been encouraging for the housing finance sector and the overall economy. The proposal to introduce 100% deduction to undertakings for construction of affordable housing will help us in realizing honorable PM’s “Housing for all by 2022” scheme.
The proposal to introduce guidelines for renegotiation of PPP contracts and reform dispute redressal mechanism will encourage private participation in the development of affordable housing projects and road infrastructure.
Decision to exempt REITS from DDT is also a welcome move. This will ensure positive movement on real estate projects and will help in bringing the sector on a sustained growth path.
DHFL had recommended empowering the customer for greater affordability. In this context, the decision to give additional exemption of Rs 50,000 for housing loan upto Rs 35 lakh sanctioned in 2016-17 for 1st time home buyer provided the cost of house is not above Rs 50 lakh is praiseworthy and will definitely ensure that more Indians will fulfill their dream of owning a home of their own.
The decision to improve the ease of doing business in India by deepening corporate bond market and announce initiatives to reinvigorate private sector has come at the right time. This coupled with reduction in corporate tax rates from 30% to 29% from FY18 for companies with turnover less than Rs.5 cr will boost the SME sector and help in economic growth.
DHFL welcomes government’s commitment to boost road infrastructure and address rural distress by skill development of rural population, allocating funds for MGNREGA scheme and providing support to agriculture. We are of the view that this year’s budget will enable the Indian economy to withstand adverse global pressure and move on the road to a more balanced, sustainable and inclusive growth. We will remain an attractive destination for investment over the medium and long term.
We also look at this Budget as one which has been quite responsible on the deficit and borrowings. Coupled with fall in crude prices which is a major input cost in our system, we can safely bet on inflation remaining benign. We see a very positive move on interest rate front as well as on bond market that will give a great fillip to financial services sector.