Commentary on Real Estate in India by Mr. M Murali, Managing Director, Shriram Properties

Posted by: at 9/15/2016 04:29:00 am

India 15 September 2016:

Overview on the real estate industry in India 
Commentary on Real Estate in India by Mr. M Murali, Managing Director, Shriram Properties

Urban Real estate in India comes from nine cities namely, Chennai, Bangalore, Hyderabad in South, Kolkata in East, Mumbai and Pune in the west and Delhi, Noida, Gurgaon in the Northern part of India. These nine cities may be contributing close to about 60 % of Real estate development. The gap between the supply and demand is huge in affordable housing and it may take long years to meet the demand for the economically weaker housing.

 Effect of RERA and GST to the real estate market in India

RERA will bring down the number of players in the industry on one side and on the other side will have few good quality players. RERA will discipline the industry. But for the RERA and the industry to be successful, there needs to be some correction on the current RERA bill. GST will also help real estate growth in long term, but in short term the cost is likely to go up marginally.

'Housing for all by 2022' and how builders like Shriram can play a role in achieving this objective
Our Prime Minister’s vision of Housing for all by 2022 is a noble cause. Once this is achieved, this one mission alone can take our country to different heights. This will bring lot of prosperity to our country - crime rate will come down by more than 50%, productivity will go up by at least 30%, and people would become more civilized. This must be done like an emergency for the prosperity of our Nation at all levels. From Shriram, we are keen to play an important role in contributing to our Prime Minister's vision.

The role of FDI in real estate in the creation of affordable housing

I would divide this into two parts. One is ‘Affordable housing’ and the other is ‘Housing for All’. What is most important for our country now is Housing for All. Only this will uplift our society. For us to make this Housing for All to come true, we need affordable long term capital. It can be through FDI or ECB or even long term bonds. We need to look at various options of making cheaper funds available for this sector.

New growth markets across India
It is only the nine major cities Delhi, Noida, Gurgaon, Mumbai, Pune, Kolkata, Bangalore, Chennai and Hyderabad take a major share of the growth. But the Delhi Mumbai corridor, Bangalore Chennai industrial corridor, and the developments in north eastern parts would bring new growth opportunities.

Interest of PE investors, Venture Capitalists in the Indian real estate market
It is a fact that some of the PE investors haven't made good returns so far. But the interest remains bullish from both PE investors and Venture capitalists.

Focus on Tier 2 and 3 markets for real estate growth opportunities
Currently, there is not much demand in Tier 2 and 3 markets. This will happen only when the industrialization happens in these cities. Having said this, urbanization is pushing its demand in these markets slowly.

Key consumer trends, buying patterns and overall outlook of the real estate industry
Consumer will look for better product and better service. But typical Indian consumer mind, may not be willing to pay a good price for a better service. Overall outlook for the industry looks very bright and the growth can be at a rate of over 30% YoY for at least next five years.

Role of real estate in Urban Infrastructure

Real Estate plays a very critical role in Urban Infrastructure. Real estate defines the city architecture, city's culture and its behavior. Real estate and the urban infrastructure should go together. If we look at the civilization and older cities, the urban infrastructure and real estate were one phenomena and it was not two different. Urban planning always included the real estate. This is even applicable to some of the latest smart cities like Barcelona, Shanghai, Singapore and even our very own Chandigarh. It just reflects the nature of the people. There are two ways to deal with this - build the city's real estate based on the nature of their people or define the real estate with urban infrastructure to reflect the nature of the people. Historically, the rulers have used real estate and urban infrastructure to build a better society and to define the nature of their society.

Escalating land prices and the role of government 

Government should not have any role in defining the land prices is my view. Let us take the example of Hyderabad and Ahmedabad. According to me, the land and real estate prices will always be fair to the end users and will never sky rocket. It is because of the good infrastructure created by these states in the last ten years. The focus on infrastructure by these two states have not only kept the real estate prices in control, but also helped consumers to have a better quality of life.

Technology in real estate 

In our country so far, the technology is catching up very slowly. This needs to be changed. Our Prime Minister has a great vision of ‘Housing for All by 2022’, and for this dream to become reality, new technology is the only solution. We should also focus on making Green buildings and this is the future.

Housing units in Southern India

Bangalore has natural advantages as a city despite its huge problems on its infrastructure development. Chennai also has a lot of natural advantage because of its industrialization and higher level of literacy rate. Hyderabad follows these two cities. Having said this, the infrastructure that has been created in Hyderabad and the Government's vision plan for the next 20 years are incredible. If Bangalore and Chennai do not give focus on its urban infrastructure, they could lose out to Hyderabad in the next five years.

Real estate, a major player in the scheme of urban development

Any development need to be inclusive which is very important for its sustained growth. It is just not the infrastructure development, there needs to be employment generation for its long term sustainability. The infrastructure growth offers short term employment opportunities and unless we create long term employment opportunities, this will lead to speculation or such cities would fail.

Once again, our Prime Minister's vision of ‘Make in India’ can bring solution to a major level. We may have to focus on industrial and agricultural development for our long term sustainability. While creating the city design, we need to keep these two factors in mind.

Rental housing as a key consumer pattern 

Indians believe in owning homes and this acts as security to them. Hence I doubt whether rental housing can be a solution. Also given the yield Vs cost of funds, it may be difficult for rental housing to become successful. This can become success when the gap between the yield and cost of funds reduces. For the real estate not to become expensive, we need to focus on infrastructure growth.

Regulations impacting the industry
This is one industry which is over regulated. Any industry to grow well and to meet its objectives, the industry must be well regulated and not over regulated.

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