Kolkata: Enter the world of Avani Heights and it’s a dizzying maze of activity with young upmarket shoppers meandering their way through an array of brands ranging from Guess to Body Shop that have made this Kolkata destination a sought after retail spot. Housed on the top floor of the residential-cum-retail block, located on one of the city’s arteries, Chowringhee, is the real-estate company responsible for creating the place. And the frenzy here is spilling over.
At least for Anirudh Daga, the enthusiasm is hard to contain and has given him the assurance that he is in the right business and the only path forward is expansion—and not just in Kolkata.
“We are gearing up. In the near future, we will be able to handle projects of much larger scale,” says Daga, managing director of Avani Estates. “Geographical location would not be a limiting factor for our group,” he adds.
Daga is not alone. A raft of Kolkata real-estate companies ranging from Ambuja Realty, Shrachi Group, PS Group to the Rungta Group, all of whom have so far focused on West Bengal, are rolling up their sleeves to aim for a bigger piece of India’s real-estate pie.
Standing tall: Avani Group’s residential-cum-commercial property at Chowringhee in Kolkata is a much sought-after retail spot in the city.
Real-estate prices in India have risen at least 30% in the last year, driven by demand from a younger population earning ever higher incomes, with more than three years of about 8% economic growth putting more money into the hands of people.
The growth in the value of real estate has also made it an attractive investment opportunity and while it started in the larger, so-called Tier 1 cities such as Delhi and Mumbai, it’s now spreading fast to smaller towns and cities. “Developers are hedging their funds in these cities as the country on the whole is experiencing a boom,” says Ramani Sastri, president of the Confederation of Real Estate Developers of India. West Bengal, which has for decades lagged behind in investment growth compared with states such as Maharashtra, is now aggressively wooing investors and real-estate values in the state capital are playing catch-up.
According to Cushman Wakefield Research, the arm of the real-estate consultancy that tracks the industry, in March 2007, the office capital value rate in Kolkata was between Rs4,350 per sq. ft and Rs6,550 per sq. ft in prime locations; in Pune, between Rs3,750 and Rs5,560 per sq. ft and in Chennai, between Rs3,500 and Rs6,200 per sq. ft.
Paradoxically, Kolkata’s rising values bring little cheer to its local developers. The regressive Urban Land Ceiling Act is the big impediment. The Act was enacted to prevent concentration of landholding in urban areas and to make available urban land for construction of houses for middle- and low-income groups. West Bengal is one of the states that have not repealed the Act so far. It sets limits on the size of landholdings within city boundaries for projects other than industrial ventures. It is said that if this Act is done away with, around 10,000 acres under the Kolkata Metropolitan Development Authority will be made available. Smaller towns and cities, where land parcels are more freely available, make for attractive propositions for developers.
All of that has prompted Kolkata’s developers to start looking elsewhere for growth. Ten years ago, the Shrachi Group partnered with the West Bengal government for housing projects in the state; now, the 13-year-old real-estate company has announced that it’s building a Rs100 crore housing project in Bhubaneswar and investing an equal amount in constructing a mall. “We have to expand to establish our presence as a national player,” says Rahul Todi, director, Bengal Shrachi Housing Development, who feels West Bengal’s laws and limiting size of projects make it necessary for companies to go elsewhere for scale.
The PS Group, which has been in the business for the last 22 years, is setting up residential complexes and malls in cities such as Coimbatore, Chennai, Pune, Jaipur and Chandigarh. It recently completed its 100th project in West Bengal, and is earmarking around Rs2,500 crore to set up five shopping malls, about 40 million sq. ft of townships and residential complexes, plus 10 million sq. ft of IT space in special economic zones. The Merlin Group, another big real-estate player, has set up residential complexes in Chhattisgarh and Rajasthan.
Ambuja Realty, which plans to set up five townships in Punjab for around Rs2,500 crore, is awaiting clearance for its projects. Harshvardhan Neotia, chairman, Ambuja Realty Group, states that the company has tied up with unnamed local players with whom it will share its resources and concept expertise.
According to Anuj Puri, managing director of real-estate consultancy Trammel Crow Meghraj, a national player has a pan-India presence and has his finger on a far more vibrant pulse, whereas local players have localized knowledge of and familiarity with their particular real-estate market environments. The marriage of the two could be a win-win situation for companies that want to expand beyond their state. Their potential to execute and monitor projects becomes stronger and they can cope better with land laws that are different in various states in the country.
Like DLF Ltd, which started from the national capital but currently has its presence in almost 20 cities across India, including smaller cities such as Shimla and Bhubaneswar, the Kolkata-based developers are hoping the key to growth will lie in expansion.
Cushman and Wakefield says the real-estate market has a buoyancy that is hard to miss. The Indian economy is expected to lead to a greater demand for commercial space from both national and international companies who are expanding their business.
On the other hand, salary growth of young urban professionals and easier access to finance drive growth in the residential sector. The average age of homeowners has fallen from 45 years to 32 years in last 10 years. A Deutsche Bank report titled “Building up India” says by 2030, India will need up to 10 million new housing units per year. The government is targeting seven lakh units to be built in urban areas each year. While some experts say there are signs the real-estate market is cooling, driven by higher rates of interest on borrowings that fund home purchases, the long-term story is hard to miss.
Although no official studies exist, several reports commissioned by management consultants state that by 2020, 50% of India’s more than 1 billion population is expected to dwell in urban centres. With collapsing infrastructures in metropolitan cities and the move to decongest them, satellite towns are being planned by several housing boards across the country. Towards this, states like Tamil Nadu and Punjab have done away with the Land Ceiling Act.
“Tier II cities such as Nagpur, Ahmedabad, Vadodara, Indore, Raipur, Chandigarh, Jaipur, Agra, Ludhiana, Siliguri and Kochi are the emerging investment destinations in the current real-estate scenario,” says Puri.