Money Guru | Tier II cities will grow exponentially in times to come

Money Guru | Tier II cities will grow exponentially in times to come
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First Published: Thu, Nov 24 2011. 11 12 PM IST

Anuj Puri, chairman and country head, Jones Lang LaSalle India.
Anuj Puri, chairman and country head, Jones Lang LaSalle India.
Updated: Thu, Nov 24 2011. 11 12 PM IST
While the draft Real Estate (Regulation and Development) Bill, 2011, which is available for public comment, has raised hopes of bringing some uniformity to the largely unregulated Indian real estate market, housing demand is steadily increasing due to the rising urban population.
Anuj Puri, chairman and country head, Jones Lang LaSalle India, a property advisory firm, discussed these and other issues in the Indian real estate market in an interview.
The draft Real Estate (Regulation and Development) Bill, 2011, was recently brought in the public domain. Are their any issues that it doesn’t address?
Unless further safeguards are put in place, the mandatory registration and licensing of projects may increase the scope for corruption. It is also not certain how a central regulatory body will address land acquisition at the state level since there are different laws in different states. These laws are not arbitrary, but based on the unique economic structuring and demographics of the state.
Anuj Puri, chairman and country head, Jones Lang LaSalle India.
Another key area that the Bill fails to address is streamlining of the approval procedures for construction, which are burdened with no-objection certificates from multiple departments in the states and at the Centre. A “single-window clearance” for construction projects saves project time and costs. That said, the Indian real estate sector needs a regulator if it is to gain credibility as a global force. I do not imagine that it will be perfect in all respects to begin with. Only its actual implementation will be able to kick-start a serious modification process. There will be lacunae, which will come to light as the market adapts and reacts. They will have to be addressed in the future.
The Allahabad high court’s order over the land acquisition controversy in Noida Extension has brought relief to Noida-Greater Noida’s real estate market. What will be some key effects in the region after the implementation of the judgement?
Stalled projects in these areas can now go ahead again, which means that buyer sentiments will improve. As an indirect consequence, land acquisition policies across states will also be brought into sharper focus. However, land will also get costlier in this belt going forward. This will have an impact on overall project costs and it is the buyers who will bear the brunt. However, it is important that simplified procedures through reforms do not result in their misuse and eventual loss of trust among homebuyers.
Where is the market headed? Do you see the number of launches increasing compared with the previous year? If yes, why?
Residential sales volumes have been low, as a result of which the rate of appreciation has also reduced. Meanwhile, construction prices have risen and developers’ profit margins have sunk in tandem. While market prices quoted by developers have not come down, discounts are being offered at the negotiation table to serious buyers. Interest rate hikes have had a significant impact on supply. Many developers are hard-pressed to complete their projects.
On the other hand, project approvals are being curtailed, so there is huge amount of supply on paper but not on the ground. This is true for most cities with the possible exception of Bangalore, where residential supply is once again beginning to look healthy.
For investment purposes, what will you suggest—tier II and III cities or metro cities?
When it comes to long-term property investment, there is no reason to look only at the metros. India has the highest rate of urbanization among the Bric (Brazil, Russia, India and China) nations. About 854 million people will live in Indian cities by 2050—that is more or less the combined population of present-day US, Brazil, Russia, Japan and Germany. In the coming decade, India will add 95 million people to its already dense urban fabric, nearly one-fourth of its current urban population. India needs more cities and the ones that are growing now will grow exponentially in times to come. Among the ones that bear watching in this regard are Ahmedabad, Surat, Vadodara, Kochi, Coimbatore, Thiruvananthapuram, Jaipur, Jodhpur, Visakhapatnam, Vijaywada, Chandigarh and Ludhiana.
In which areas/regions do you see pressure on property prices? Will there be moderate correction in the near term in key cities?
The “correction spotlight” is definitely on primary cities, more significantly Mumbai and Delhi. However, I don’t think there will be a correction when it comes to finished projects with ready-to-occupy units priced for the middle-income segment. Given the construction risk, people prefer ready-for-occupation projects for which there is still healthy demand.
Newly launched and under-construction projects are already being marketed at rationalized prices, which technically amounts to a price correction in those cases. We can, however, expect to see price corrections in large township projects on the outskirts of larger cities and also in super luxury residential projects in prime areas.
devesh@livemint.com
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First Published: Thu, Nov 24 2011. 11 12 PM IST