India’s state-run housing boards want a piece of the still booming real-estate market, and they don’t mind going through a makeover if that’s what it takes to get this.
Land prices, despite recent concerns that the real-estate boom is over, continue to remain reasonably high and there is still enough demand for space for developers to launch new projects, both commercial and residential. And so, the housing boards, which were once synonymous with drab office complexes, residences, and retail spaces, have gone the glass-and-chrome route and have begun teaming up with companies from the private sector for projects.
Andhra Pradesh Housing Board has already partnered with private developers in 23 projects, including two IT parks being developed by DLF Ltd and Mindspace, part of the K Raheja Group. “The experience thus far has been good,” said D.S. Raju, project coordinator of APHB, who handles joint-venture projects. “We share the profits if we put in equity, or else we take a commission on total sales.”
The board has chosen to take an equity stake in only one project; in the rest, it earns a commission that could range from 1.5% to 8%. According to Raju, commercial projects constitute a tenth of the total work undertaken by APHB; the rest is housing projects.
“It is not possible for us to sell affordable houses in Chennai,” said a senior official in charge of projects in Tamil Nadu Housing Board (TNHB), adding, “land prices have skyrocketed in the last few years.” Still, not wanting to be left out, TNHB is seeking partnerships with private firms to develop commercial properties for the first time in its 45-year history. The board says it will jointly develop IT parks and modern retail malls with private developers.
TNHB has a landbank of 1,400 acres waiting to be developed. This will attract at least Rs1,200 crore of investments, said a top official at the housing board who declined to be named.
While the state-run entity will handle government approvals and land acquisition, the private companies will be responsible for design, construction and marketing. TNHB has held preliminary talks with DLF, McNamara International, Emaar-MGF Land Private Ltd, and with two Malaysian companies, UEM Group and IJM Properties, said the official. TNHB’s plans also include an IT park with a built-up area of 250,000sq.ft. To be built at a cost of Rs55 crore, the park will be located in South Asian Games Village, forming part of Chennai’s peripheral business district.
That site will be somewhat unusual in the sense that a majority of new construction tailored for the tech industry is coming up along a 45km stretch connecting south Chennai and Mahabalipuram. The board’s project is “a good idea. The place is easily accessible and there is a lot of employee catchment” there, says Ramesh Nair, local director of Jones Lang LaSalle, a real-estate advisory.
Board officials say it is a ‘win-win’ situation, as the joint venture with private firms will help unlock the value of the land and provide additional revenue for the board. Housing boards in Karnataka and Gujarat, too, are in different stages of implementing similar strategies.
According to Knight Frank, an independent consulting firm, the real-estate market is growing at a rate of 30% a year. The firm estimates that around 30 million sq.ft of new office space will enter the market this year.
The Karnataka housing board recently started scouting for a joint-venture partner to build a commercial complex, multiplexes and a convention centre in a 12-acre plot near Bangalore.