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Build more integrated Townships to decongest our Metros

Large cities are getting over-crowded under the relentless march of urbanization. An estimated 160 million people have moved to India’s cities in the last two decades, and another 230 million are projected to move there within the next 20 years. The exponential rise in the number of city dwellers is leading to an ever-increasing demand for housing and urban infrastructure. At the same time, the massive influx of people has strained India’s urban systems to the point of breaking down, creating massive slums with inadequate housing, sanitation, basic services and security. The 2011 census indicates that there are 14 million households (or approximately 70 million people assuming an average household size of five people) living in slums in India’s cities.

To cope with this demographic pressure, all our bigger cities are stretching their boundaries. The extension of the traditional city limit is spurred in large measure by the expansion in real estate activity to accommodate the bulge in population. Even the new master plans for all major cities are being rejigged to facilitate the expansion of city limits.

To ease the pressure on big cities and improve the quality of urban living, town planners and policymakers are encouraging the setting up of integrated townships as an effective development tool for building infrastructure in the newly marked spaces beyond traditional city boundaries. Setting up of self-contained integrated townships in a decentralized manner offers a sensible solution to providing a more holistic living environment and preventing the proliferation of unplanned urban villages. In fact, integrated townships bring a raft of value propositions such as affordability, convenience, and a relaxing lifestyle in one very attractive package to modern urban planning and development.

As these townships have functional linkages with mother cities, surrounding areas and towns, they are better able to address the pressure on urban areas and its infrastructure and at the same time fulfil the need for higher residential density in the outlying areas of bigger cities. Varying in land use and size ranging from 20 acres to over 1000 acres, what also sets them apart is their unique and seamless blend of residential, commercial, industrial and retail features, which offer a holistic and sustainable urban development model.

Most integrated townships have at least 25 per cent of the total built-up area for residential use with the rest of the land parcel housing offices, commercial centres, clubs, schools, etc. However, there is no standard definition of integrated townships from a regulatory standpoint. Different states define integrated townships differently. Gujarat, for instance, has a policy that encourages development of six different types of townships: technology parks, education-based townships, medical and healthcare townships, tourism-related townships, logistics parks, and residential townships. The policy requires 80 per cent of the built-up area to be developed for residential use, while making housing for economically weaker sections (EWS) mandatory.

On the other hand, Maharashtra, which was the first state to come up with an integrated township policy back in 2004, requires such projects to have a minimum spread of 100 acres. However, a new policy to help develop integrated townships outside congested city areas to address the problems of population density and the real estate crunch is in the offing and would most likely be announced by the new government after the assembly elections in October. Probably, taking into consideration the pressure on land availability, Maharashtra could be looking at relaxing the minimum land requirement criteria.

For instance, the Haryana government has come forward to promote integrated township projects by proposing the easing of development norms. The relaxation of the land requirement norms by many state governments has encouraged developers to come up with more integrated townships. The Central Government has already opened the doors for External Commercial Borrowings (ECBs) in integrated township development. The easing of the FDI investment parameters for the real estate and construction sector, which is currently underway, would further help to create a more conducive investment environment for the growth of more integrated townships in India.

Now that the focus of the government is firmly fixed on providing “housing for all” by 2022 and promoting affordable housing across major cities of India, it makes eminent sense to develop and build integrated townships. Today, when even some of the big city corporations are scrambling for funds to maintain and improve their local urban amenities and infrastructure development, promoting the idea of integrated townships can help solve many of our urban development problems.

That explains why such townships are coming up in a big way on the outskirts of cities like Delhi, Mumbai and Bangalore. Even some 3-4 years ago, there were more than 200 integrated townships covering more than 200,000 acres that were under approval for planning and construction especially around the four metros, according to an infrastructure report by IDFC. In recent years, a number of integrated townships have come up or are under development in the NCR agglomerations of Gurgaon, Noida and Greater Noida.

Real estate analysts and consultancy firms such as Jones Lang Lasalle predict that over the next 2-5 years, most metros and satellite cities are likely to see increased launches of integrated township projects. Even Tier II cities and state capitals which see the population from the interiors gravitating towards them are also likely to see such projects being launched. A report by McKinsey states that there is a need to build around 20-25 new townships closer to 20 metros and cities across the country.

Real estate to benefit from focus on Economic growth and Infrastructure

The real estate market in India is poised to grow and expand on the back of strong demand for housing and office space. From both end-users and investors, the total new housing demand will be nearly 12 million units in the period 2013-17, as per a Cushman & Wakefield estimate.

This is in stark contrast to the trends over the past two years, when high interest rates and sluggish growth coupled with continued high prices across most cities led to slowing of demand for real estate. Inflation ruled high over this period, job opportunities were reduced significantly across industries, the rupee saw steady erosion against the US dollar and market sentiments reached an all-time low. The real estate market, both residential and commercial, saw a dip compared to the impressive growth during the period 2003 to 2010 when the Indian economy enjoyed an average growth rate of 8.2% per year. Growth rate for the last fiscal dipped to 4.7% falling from its peak of 9.3% in 2007-08. According to a Cushman & Wakefield report, new launches of residential projects in India dropped 12% in 2013 from a year earlier. Both luxury and affordable housing segment registered a decline of 25% and 72%, respectively.

The current high level of demand is however likely to outstrip the stock availability. Over the next five years, Indian real estate market is expected to grow at a CAGR of 20%, driven by 18-19% growth in residential real estate, 55-60% in retail real estate, and 20-22% in commercial real estate. KPMG estimates that the real estate sector is expected to grow by 30% by 2015 while the market is expected to touch $180 billion by 2020.

The International Monetary Fund (IMF) has projected 5.4% GDP for 2014. According to the National Housing Index, residential housing prices in 12 cities have already shown increase in prices in the quarter ended March, 2014, over the previous quarter ended December, 2013.

The government’s focus on the expansion and development of infrastructure such as highways, roads, ports, railway lines, manufacturing hubs, dams, canals, irrigation channels, etc., which will also lay the ground work for developing the 100 new smart cities, is expected to give a tremendous boost to the real estate industry. Among the major initiatives announced by the government in its maiden budget include:

  • Provision of Rs 7,060 crore for developing ‘100 Smart Cities’, as satellite towns of larger cities and modernizing the existing mid-sized cities
  • Allocation of Rs. 100 crore for Metro projects in Ahmedabad and Lucknow
  • Allocation to Urban Renewal (infra development) increased from Rs 5,000 crore to Rs 50,000 crore
  • Boost to road construction – Investment of Rs. 37,880 crore in NHAI for construction of National and State Highways. 8,500 kms to be completed this year.
  • Expressways to be set up along new industrial corridors – Rs. 500 crore for project preparation
  • Setting up new airports, inland navigation system, SEZs etc. through Public Private Participation

The quality and coverage of infrastructure services have a major impact on real estate markets and overall economic growth. Focused and timely implementation of infrastructure projects will not only restore confidence in the Indian economy, but it will also create mass employment opportunities nationwide, providing avenues for real estate growth and expansion across the country.

India needs to invest $ 1.2 trillion over next 20 years to modernize urban infrastructure and keep pace with the burgeoning urbanization, as per a report (India’s urban awakening) by McKinsey Global Institute (MGI). This kind of spending is sure to pump up demand for the real estate industry in India. Experts contend that the Delhi-Mumbai industrial corridor is one of the perfect examples of rise in the infrastructure industry which will cover most of the industrial zones with the parallel development of smart cities as well as efficient creation of a complete logistics network. A raft of other infrastructure projects, including expansion of mass transit systems, better rail and road connectivity, ports and airports, will uplift the quality of living for people in the cities and regions around it. As per the Census of India 2011, 377 million persons live in India’s cities, thereby constituting 31% of the total population. This is expected to increase to 40% by 2030, which makes it imperative for infra projects to be fast tracked in order to meet the challenges posed by the growing speed of urbanization.

New and emerging real estate corridors – such as Sohna, Yamuna Expressway and Dwarka-Gurgaon Expressway in NCR, Ulwe and Karanjade in Mumbai and Hennar Road in Bangalore are attracting a beeline of projects, buyers and investors due to the planned infrastructure and speedy connectivity in these locations.

In periods of economic growth or stability, employment tends to grow to accommodate people looking to buy homes and businesses looking to expand office or retail space. An improving job market will not only bring greater numbers of fresh buyers in the real estate market, it will buoy consumer confidence resulting in increased consumer spending, which will drive demand for new homes and upgrading by existing owners.

Festive season sees a spike in Property Sales

Traditionally, property sales see an upsurge during the festive season, which commences from October and lasts till February-March, almost till the time of Holi. With Navratras and Dussehra heralding the beginning of the festivities, realtors believe this is the best time to woo buyers, as making new investments and purchases during this period is considered auspicious. After all, most Indians tend to link property acquisition with auspicious dates. And there is no better time than the festival period to turn sentiments conducive to making big ticket buying decisions.

It has been observed that activity levels in the property market increase substantially during this period. This year, the industry is hoping to close sales of at least 60,000 units across seven major cities, almost double of that recorded in the past two years. Average annual sales for the sector are expected to reach 200,000 units, with a good festival season contributing 30-40 per cent to the total.

Industry sources say that between 2012 and Q2 2014, around 4,81,000 units were launched in top eight Indian cities; Delhi-NCR, Bengaluru and Mumbai accounted for 27 per cent, 25 and 15 per cent respectively. The nascent revival in market conditions since the formation of the new government at the centre is making the industry look forward to liquidating substantial real estate inventory.

Playing on this positive sentiment, developers are pulling out all stops to woo customers into buying homes by offering special discounts and promotional offers. Some are offering lucky draws, discounts and pre-launch offers, scratch cards that could win buyers a foreign trip, a car, club membership or mobile phones. A few others have conjured up ingenious offers like a no EMI clause until possession. Besides, there are inaugural discounts for bookings, easy-payment options, stamp duty waiver, cash discounts and assured returns plans that many buyers would find appealing.

While these special offers and freebies help developers to tap potential customers, they also serve to unload the unsold inventory before fresh launches can be made. As many as 100 new projects will be launched during this festival season in the top eight Indian cities, but most of these markets continue to be also saddled with high levels of unsold stock. Data by a real estate research firm shows thathe Mumbai Metropolitan Region had an inventory of 53 months at the end of June 2014, while the NCR had an inventory of 45 months. Among other top Indian cities, Hyderabad had an inventory of 47 months, Pune 23 months and Chennai 26 months. Bangalore had the smallest inventory among major cities, of 19 months. An ideal market maintains an inventory of eight months.

Offering aggressive discounts and enticing promotional offers can help developers to liquidate their existing stocks swiftly. However, though festive discounts on property sales are known to speed up the decision making process of a customer, they are unlikely to affect his/ her choice of developer and project. This is so because while a customer may base his/ her decision for buying low value consumer durables based on festive discounts and offers, it is unlikely when it comes to a high involvement product such as buying a house. Factors like credibility of the developer, location of the project, amenities provided, construction specifications become the key drivers for property selection.

Given the fact that there exists plenty of end-user demand in the real estate industry, buyers would surely be more than willing to snap up products that offer good value for money and meet their expectations. Any additional discounts or offers along the way are bound to sweeten the deal further and will help to draw out more customers waiting in the wings. With the momentum in the business cycle picking up visibly over the past couple of months, let’s hope that this festive season packs a real wallop for the real estate sector.