MARKET RESEARCH
September 2015
T h e P i l l a r s o f Tr a n s i t i on JLL India outlines the four P's of real estate that are driving change in the industry and improving the home buyer's experience
PLAYERS The real estate industry has been a highly localised industry in India with each city being dominated by a select few developers. However, in the post-global financial crisis (GFC) era, several developers started to expand their footprint to newer geographies. For example – K Raheja Corporation, dominant in Mumbai, forayed into the Hyderabad IT segment through its Mindspace park in 2004, Godrej Properties, dominant in Mumbai, forayed into Ahmedabad through its Garden City project in 2013 and entered the Pune market by way of its Horizon project at Undri in 2012. A recent entrant in the Indian realty space and primarily on the retail segment is the Xander group, which is establishing a pan-India portfolio of properties spanning diverse asset types starting with its VR Mall at Surat, (completed in 2013). It is highly likely that the trend of large and well capitalised developers building a pan-India portfolio of real estate assets may sustain and strengthen over the next decade as the market matures and weaker players get weeded out for lack of capital, corporatisation, and technical prowess. Eventually, the sector would witness a period of consolidation wherein large, well-capitalised developers would gain market share by either purchasing assets or acquiring smaller players... The introduction of real estate investment trusts (REITs) would catalyse the transition as private equity (PE) funds would be able to make exits from their current projects freeing up capital for more judicious deployment in future years.
PROCESSES Ongoing changes in how real estate stakeholders are carrying out their business in India reveal a change in market perception.
Growing acceptance of international real estate consultants
As against the 1990s, when multinationals that entered India largely adopted the Indian standards in real estate, the IT-era growth post 2000 witnessed offshore companies demanding quality IT space. Besides, India’s growing prowess in the world of services, trade and business resulted in a wider participation of multinational companies, who shifted their base to India and created a natural expectation for superior quality of construction, architecture and design. Local developers left no stone unturned to ensure best practices
Real estate records going online
"The IT sector has dominated space occupancy for almost a decade and is now exploring new cities for expansion or creation of new bases. The necessity to exert tight control on occupancy cost, to maintain cost-competitiveness, prompt IT/ITES to scout for alternate destinations that have an abundance of skilled manpower. This is resulting into the emergence of new cities. JLL India
across the globe were gradually adopted. More recently, we are beginning to witness the trend of outsourcing of AEIC (Architecture, Engineering, Interior and Contractor) practices to globally renowned agencies in an effort to make Indian cities stand out...
Property transactions becoming increasingly legitimate
While the property market slowdown in India since 2011 has hurt many, one positive thing that has happened is the consistent fall in cash component (source of black money) in property purchases. Over the last years, property prices have almost stagnated across major real estate markets. As a result, majority buyers who are currently active in the market are salaried people who can support a loan but cannot afford cash payments. Today, as much as 80 per cent of buyers in top cities are salaried employees. Today, almost all newly developed residential properties can be bought with 100 per cent white money. Many resale properties too are available without the cash component. Government’s recent budgetary measures to encourage or incentivise electronic payment for large transactions such as property purchase, and simultaneously raise punitive action against illegal transaction, will further help reduce cash dealings.
India is today at the forefront of adopting technological innovations into practice across a wide variety of businesses and public administration mechanism. Initiatives such as e-governance and Digital India are bringing about sweeping changes in the way public administration operates and records are maintained. In the last five to seven years, a few government websites have taken the lead in making critical land and registration records available online, thereby giving a new boost to market transparency.
PRODUCTS There is a change in the way construction quality and techniques have evolved over the years. By simple observation, projects completed before 2000 mostly had older design and no amenities. The buildings had no element of sustainability – energy water harvesting system, security systems, advance safety norms etc. .. Post the beginning of IT boom in India around the year 2000, large IT companies and other MNCs who wanted to enter India in a big way, expressed their desire to occupy space in modern offices. These factors led to Indian developers delivering superior construction quality that fulfils the requirement of MNCs and IT companies.
PLACES Property markets are evolving at every stage, starting from tier-I cities since liberalisation days to tier-II cities post the IT-ITES boom in India during the late 1990s. Driven by rapid pace of growth of the services sector, markets strengthened in the tier-I cities, which were predominantly occupied by sectors such as BFSI, Pharmaceuticals, FMCG and Media... Today, cities such as Bangalore and Pune are dotted with the presence of large IT multinationals and the incremental space for new entrants is getting limited. The IT sector has dominated space occupancy for almost a decade and is now exploring new cities for expansion or creation of new bases... This is resulting into the emergence of new cities such as Chandigarh, Visakhapatnam, Vijayawada, Mysore, Kochi, Coimbatore, Tiruchi, Bhubaneswar, Ahmedabad and Gandhinagar, Jaipur as the new centres of choice for setting up large-scale IT infrastructure. Source: 'Is Indian real estate heading towards a tectonic shift?'; a JLL/ CII report 33