After encountering three significant events within six months’ time, the question that prevails is how the Indian real estate industry will perform. However, the majority of stake holders are extremely confident and awaiting a big transformation in the industry…
Owing to the events – like demonetisation, Goods and Services Tax (GST) and Real Estate (Regulation and Development) Act (RERA) — in the economic and regulatory fronts, a section of the realty players are in a state of confusion. On the other hand, the other stake holders are expecting a big boost in the market from the customers’ rejuvenated confidence.
Under the RERA, the Government of Maharashtra has established Maharashtra Real Estate Regulatory Authority (MahaRERA), in March 2017, for regulation and promotion of the real estate sector in the state. MahaRERA has fixed July 31, 2017, as the deadline for registration under the act. Although initially, the registration form submission rate was as low as 15 to 30 per day, MahaRERA is expecting it to go up to 500 per day soon.
Maharashtra is the state where most of the key components under the new act were already in place under the previous act called Maharashtra Ownership Flat Act-1963 (MOFA). This allowed the state government to implement it quickly. Registration under MahaRERA is compulsory. However, several stake holders are still in a state of uncertainty about the implications of the new act. Sensing the market pulse among the section, CII recently organised its ninth edition of CII Realty and Infrastructure Conclave in Mumbai – to drive away the negative vibes from the industry and to gauge the future market dynamics.
The transforming era
While delivering his welcome speech, Rishi Bagla, chairman of CII Maharashtra State Council, informed, “While earlier a long-term impact of demonetisation was expected, the latest monthly data indicates that the economy is on the way to full recovery. On the policy front some notable achievements have been, the state level implementation of RERA and induction of modified guidelines for REITs. Clubbed with the demonetisation drive, these regulations are clearly set to transform the realty sector.”
According to Bagla, the future realty market from the customer’s perspective will be driven by quality, cost, delivery, development and management (QCDDM), whereas from company’s (internal) perspective – it will be influenced by the factors like production, quality, cost, delivery, safety and morality (PQCDSM).
Highly optimistic about the growth of the industry, Abhishek Lodha, managing director, Lodha Group, said, “The Indian real estate market is expected to touch USD 180 billion by 2020 and USD 350 billion by 2027 – where the products will be more structured and pre-planned. As on date, the housing sector alone is contributing five to six per cent to the country’s Gross Domestic Product (GDP).”
As far as official spaces are concerned, so far we have seen the real estate growth primarily centred around the IT and ITeS businesses. However, several office estate developers are now rethinking mainly due to the United States’ latest changes in job outsourcing policy. While highlighting the successful entries of the new concepts in the office space, Juggy Marwaha, Indian lead, WeWork explained, “Mumbai MMR offers the best opportunity for creating co-working offices. For institutionalised co-working operators operating in India today, occupancy levels have been nearing 100 per cent. The break-even period for such operators has been approximately five months of launching.”
Opportunities galore in the sector
It is expected that around 300 million people will move from rural to urban areas in the next few years. Obviously they will look at tier II and tier III cities, there lies a big opportunity. In Mumbai region, Mumbai Metropolitan Region Development Authority (MMRDA) has approved a budget of Rs 6,976.50 crore for fiscal 2018, a major chunk of it will go on real estate development.
Besides that the Government of India is launching many new model cities, these models will offer huge opportunities to the real estate developers. Apart from these models, Prime Minister Narendra Modi’s ‘Housing for All by 2022’ scheme will also create a big opportunity in the residential segment.
Around twenty-four satellite townships will be built around the Delhi-Mumbai Industrial Corridor. These industrial townships will open up a huge opportunity for the real estate developers. Many new warehouses and industrial parks are also bound to come up there.
Retail industry like F&B, cinema, leisure and entertainment are redefining the ideal retail mix keeping in mind the consumer interest and intent. Thus in the coming days, the segment will enhance the need for ideal places to operate. Moderator Pankaj Renjhen, managing director, retail services, JLL India along with panelists Vishal Mirchandani, CEO – retail and commercial, Brigade Enterprises; Riyaaz Amiani, CEO and MD, Impresario Entertainment and Hospitality; Sahil Malik, promoter and director, Da Milano and Govind Shrikhande, customer care associate and managing director, Shoppers Stop Ltd. discussed the upcoming opportunities in this space. They stressed on the need of increasing focus on consumers’ experiences and out-of-the-box thinking.
RERA: Its real purpose and impact
In his brief address on how RERA will benefit the sector, Gautam Chatterjee, chairman of Maharashtra RERA, explained, “RERA talks about transparency through various types of disclosures by a promoter who is taking up a real estate project. It talks about timely completion, a model form of agreement that is to be signed between the promoter and the consumer. It indicates a quantum of advance money that can be taken from a buyer.”
“Various provisions of MOFA were not taken seriously, because implementation was weak. In around 50 years, MOFA has not been able to achieve that level of transparency, because its grievance redressal mechanism was not that strong. The major difference between MOFA and RERA is – RERA extensively uses information technology. Under RERA, all the information has to be shared in the public domain by the promoter – so that everybody can see that. Also, the grievance redressal system is very robust under RERA. The act will certainly bring in transparency, efficiency and accountability in the industry. Chatterjee added, “As we come out of the era of non-compliant behaviour to a compliant regime, I am sure the industry will flourish. When investors will see that there is someone to oversee the project, and customers will find that their property is being cleanly and timely developed, then obviously it will be a win-win situation for everyone.”
While commenting on RERA’s effect on the commercial performance of the sector, Niranjan Hiranandani, founder and managing director, Hiranandani Constructions opined, “It is too early to comment on this. Most of the states do not have a proper system in place. However, Maharashtra is doing everything on time. I do not think there will be any challenge in implementing RERA in Maharashtra. But of course, people will have to understand that transparency issues will be there and the liquidity issues will have to be met very quickly.”
Infrastructure development in Mumbai region
Commenting on the infrastructural development scenario in the Mumbai region, Hiranandani said, “Infrastructure in the Mumbai region will find a big paradigm shift soon. I am glad to note that not only the projects have been brought to the ground, but also they are mostly technically cleared. Seventy per cent of the funds are already tied up for the projects that JICA (Japan International Cooperation Agency) is doing with the central government. Environmental clearances have been obtained. Thus, it will change the infrastructure not only in Mumbai and its suburbs, but also in its peripheral regions.”
Real Estate’s finance status
Towards the end of 2016, the real estate market has noted improved investors’ confidence, whereby the private equity investors are expected to take more interest in the real estate. Already some institutional investors have preferred creating a platform with a single developer for investing in a portfolio of pre-defined projects. Structured equity is also being evaluated by some investors. Almost 40 per cent of total investments that came in the real estate sector in 2016 have come through equity investments.
Real Estate Investment Trusts (REIT) have already got Securities and Exchange Board of India’s (SEBI’s) approval. As per SEBI guideline, the minimum asset size to be invested is Rs 500 crore. As REIT platform will open an opportunity for investment to all sizes of investors, it will attract common investors to put money in the real estate sector indirectly.
In a panel discussion moderated by Anthony Couse, CEO, JLL APAC, panelists Nipun Sahni, Partner and Real Estate head, Apollo Global Management; Mohit Malhotra, managing director and CEO, Godrej Properties; Avnish Singh, managing director and country head (India), Tishman Speyer; Rajesh Jaggi, managing partner, Everstone Capital Advisors; Subodh Runwal, director, Runwal Developers and Satya Mohapatra, senior president, corporate finance (urban), infrastructure banking, Yes Bank discussed the developments in foreign interest and investment in the Indian realty.
Satya Mohapatra said, “There is a large scale consolidation happening in the Indian real estate sector. Because credibility and track record of the developer are becoming more and more important. Owing to improved consumers’ awareness, small developers are finding it difficult to sell their projects. Thus, big entities are taking over the space, which is lucrative from the bank’s investment perspective. Also, it is attracting foreign investment.”
Rajesh Jaggi, managing partner, Everstone Capital Advisors, said, “We played the role of a manager and developer. I think that has been a plus point for us. Foreign money is coming to the sector, but it is important how we deliver the projects. Everybody looks at the return on investment. So, there is enough money waiting to come to realty projects – but it is critical to convince the investors on our capability.”
Nipun Sahni, partner and real estate head, Apollo Global Management, said, “There should be capital for smaller cities. Historically in the last 10 to 12 years, I have observed that the capacity of size and scale that the bigger cities can absorb is vastly different from the smaller cities. I do not think institutions like us are geared to handle smaller ticket transactions. But I am sure that smaller cities will be able to attract capitals through the NBFC route.”
Attendees express high level of satisfaction
“It was a very engaging event, especially after much speculation about possible effects on real estate sector post demonetisation, RERA and GST. Encompassing nature of topics and thought leadership of the real estate sector was indeed enlightening amidst ensuing haze of ambiguity,” opined Kshitij Limaye, executive director, Sankalpan.
Swaroop Agaskar, studio director (India head), KTGY, revealed, “As architects, we always need to sense the pulse of the real estate sector. We are a kind of bridge between the customer and the developer. I came here to learn about the impact of GST, RERA etc., in the real estate sector. As lots of industry players are here, I have got a good idea about the present and future of the sector.”
Sanjay Desai from Embassy Industrial Parks, Bengaluru, said, “I came here to explore more areas where we can work in the coming days – as far as industrial parks are concerned. I have got lots of information on the developments from this conclave. The government’s role seems to be very positive to boost our business.”
Shrikant Sawant from Listenlights informed, “This conclave is highly informative. I find the approach very collaborative. Each and every panelist is highly experienced and trend savvy. This event has given very good takeaways for everyone. I am sure after attending this conclave, people will look into the GST and RERA with a positive outlook and that will help in taking their businesses to the next higher level.”
