The Indian real estate sector is going through a paradigm shift, driven by regulatory developments and new trends in the industry, which will facilitate increasing efficiency and transparency. FICCI – Ernst & Young white paper on “Building new dimensions for real estate growth”, addresses issues in the sector including IT-enabled business transformation, fraud vulnerability and mitigation and effective workforce management. It also highlights several policy interventions in the sector, new emerging asset classes and developments in the South Indian real estate market.
Emerging trends: The regulatory developments are expected to bring significant changes to the sector. For instance, the Real Estate Regulation and Development Bill encourage fair practices in real estate dealings and fixes accountability with the developer at every stage of development. The Land Acquisition, Rehabilitation & Resettlement Bill is expected to reduce litigations and delays in projects by providing defined guidelines for land compensation. Furthermore, the changes to the Special Economic Zone with respect to relaxation to minimum built up area criteria are a step in the right direction providing an impetus to real estate developers.
Developers are shedding non-core activities to de-leverage their balance sheets and reduce the outgo on account of interest. Several developers are exploring asset light models such as Joint Development Agreement (JDA) to reduce the impact of funding land purchase. “In tight liquidity conditions, JDAs help developers to make optimum use of capital by simultaneously entering multiple projects. Better realisation on account of upside from future cash flows helps the land owners as well,” says Venu Gopal, Executive Director, Ernst & Young.
Emerging asset classes:Developers have started focusing on new asset classes such as affordable housing, senior living, education and health care real estate, which provide promising investment opportunities. Affordable housing and senior living segments cater to specific segments of residential customers, based on income and age, respectively. The Medical city concept is gaining visibility on the back of extensive budgetary focus on health and family welfare by the Government of India. Medical tourism is also set to grow in future due to India’s cost advantage and is likely to be the primary driver of health cities. Entertainment-related real estate, such as sports cities and amusement parks are unique emerging asset classes in India.
Transit-oriented real estate (TORE) involves development of industrial hubs, townships, retail and office space around major airports, industrial corridors, dedicated freight corridors and metro rail. The modernization of major international airports, development of dedicated freight corridor and national manufacturing zones (NMZs), existing and upcoming metro rail projects in key cities have driven the growth of TORE in the country, as per the whitepaper.
South India real estate: An educated population, high proportion of salaried professionals and large-scale presence of service industry are the common drivers behind the growth of the real estate sector in the southern states. The fundamentals of real estate sector in South are good as demand is largely driven by an end-user market, which provides for limited volatility in prices.
Bengaluru, the Silicon Valley of India, is home to a substantial number of Indian IT professionals and creates a large demand for residential properties in the city. The real estate demand in Hyderabad is driven by IT/ITeS and pharmaceutical sectors. Major infrastructure corridors built around the city will provide significant impetus to real estate development in the city. Real estate development in Visakhapatnam, the second-largest city in Andhra Pradesh, is driven by petroleum, chemical and petrochemical industries associated with the presence of a major port and offshore petroleum reserves.
Chennai has emerged as a major export hub for the automobile sector along with a significant presence of IT/ITeS companies driving the demand for real estate. Infrastructure projects including the Metro rail, and outer ring road along the periphery of the Chennai Metropolitan Area are expected to further facilitate real estate development in the city.
Coimbatore’s economy is driven by engineering, textiles, hosiery and poultry industries. The steady demand for affordable housing drives the real estate market in Coimbatore. Kochi, the commercial capital of Kerala, is fast becoming a preferred destination for IT/ITES companies due to availability of a highly skilled workforce, good connectivity and quality telecom infrastructure. Presence of a major port and related activities, well established tourism, health and wellness industry are key demand drivers for the real estate sector. Infrastructure projects such as Kochi metro are further expected to provide impetus to real estate development in the suburbs and places around metro stations.
According to Mr. JC Sharma, Chairman, FICCI Sub – Committee on South India Real Estate & VC & MD, Sobha Developers Ltd., “Traditional methodologies in the industry have been put to test, providing an exciting phase for developers to evaluate new growth channels. Development of these emerging asset classes is gaining momentum in almost all urban centers of the country. The need is to harness the potential in an efficient manner”.
Building blocks for growth: The industry is going through an important transition with both internal factors (project execution, work force management, among others) and external factors (macro-economic environment, government initiatives, among others) having an important influence on the sector. As a developer, it is increasingly being seen that it is pertinent to understand these issues and effectively channelize capital to ensure efficient operations. The white paper dwells into the various aspects in the industry such as technology, fraud mitigation and work-force management.
• IT-enabled business transformation: Real estate companies have recently started using digital technologies. The shift is evident both internally and externally in the sector. Disruptive business models leveraging online, mobile and social channels are challenging traditional methods. Technology is being used in engaging customers, identifying potential home buyers, integrating and improving marketing and sales effectiveness.
• Fraud vulnerability and mitigation: The real estate sector is vulnerable to several fraud risks spanning areas from revenue and procurement to facilities, which has been demonstrated by recent cases. These fraud risks can be mitigated by taking certain steps such as conducting pro-active fraud risk assessment, proactively analyzing operational data on an on-going basis etc.
• Effective workforce management: Effective workforce management is a key pillar to ensure a strong, sustainable and confident real estate business. It is a holistic and integrated framework that involves both interplay and alignment of multiple HR and business elements.