Tier II and Tier III cities will now be the mainstays of the Indian realty sector as the mega-metros and Tire I cities are either saturated or the land and realty prices have become prohibitive there.
With real estate in metropolitan cities becoming prohibitive, many buyers with limited budgets are turning to Tier II and Tier III cities to buy their long cherished dream houses. Usually, these towns are located close to their native places. Even though they may not be able to live in these apartments now, these city workers feel secure in the knowledge that they have a place that they can turn to once they retire from their professional careers. In addition to this factor, growing industrialization and rising opportunities in the service sector are driving demand for housing in Tier II and Tier III cities.
As real estate boom gathered pace in the first decade of this millennium, a large number of metro-based developers announced housing projects in Tier II and Tier III cities. There were several reasons for their foray into smaller cities. The market in metropolitan cities had by then turned red hot. The price of land had risen to such high levels that most developers worried whether it was possible to develop viable housing projects at such prices. In comparison, the price of land in Tier II and Tier III cities was far more moderate. While many micro-markets in metropolitan cities had saturated, in Tier II and Tier III cities, supply was still inadequate to meet the demand arising from the spread modern retailing, outsourcing, IT and manufacturing to these cities.
By early 2009, many developers had adopted the obvious strategy of price correction in existing projects to clear mounting inventories and lure consumers back to the market. During the period, there was another paradigm shift as many developers realized that the market had converted from an investor driven one to an end-user dominant one. Recognizing that the end users were seeking homes that were affordable, developers altered their product portfolio and launched affordable housing across India to revive demand by the end of the first quarter of 2009. The affordable housing concept, coupled with reduced home loan rates, put the real estate market on the path to recovery.
The cities of National Capital Region (NCR) hold the highest potential of future growth, providing maximum investment potential and have demonstrated the healthiest absorption rates during this dynamic phase of real estate development. These cities are amongst the Top 10 cities ranked on absorption levels. Noida has emerged as the leader in NCR. Noida and Faridabad have demonstrated high absorption primarily due to launch of affordable housing projects. The recent projects of Jaypee Group (Aman) in Noida and BPTP (Elite Floors) in Faridabad were primarily driving the high absorption values in these cities with developers commanding more than 70% of the market share.
Noida-based developer, The 3C Company, has announced the country’s largest green-residential project, Lotus Boulevard, spread across 40 acres and to be built with an outlay of Rs 1,550 crore. “ Lotus Boulevard will strengthen commitment to provide worldclass facilities, which are not only user friendly but also contribute in reducing carbon footprints.” the project would offer residential apartments of 2- and 3-BHK units, with areas ranging from 987 sq ft to 1,820 sq ft (approximately) and at a rate of Rs 2,825 per sq ft.
However, with the worst of the downturn behind us, major players are once again dusting off their plans for smaller cities, albeit with several modifications. Chairman of Confederation of Real Estate Developers Association of India (CREDAI), says, “Over the long term, real estate development in smaller cities will be aligned to the level of their economic progress and the infrastructure put in place by their respective state governments.”
One of the basic reasons for investment flocking to these smaller cities is the availability of properties at affordable prices. Government is also taking an active interest in promoting these cities as investment options to decongest Tier I cities and to ensure more uniform development.” He adds that growing congestion in the metros has forced governments and corporates to seek alternatives in smaller cities, and this has in turn boosted demand for real estate in them. Some of these cities, with their rapid pace of development, present attractive opportunities to real estate developers.
Venturing where few private players have gone before, India’s largest realty firm, DLF, is planning to build one lakh affordable houses, which would cost less than Rs 20 lakh, in major cities across the country. It has also plans to cut its debt by half, to Rs 6,200 crore, by the end of this fiscal year. “Launch of new ‘value’ housing segment with a distinct brand is under planning,” according to an analyst presentation posted on the DLF website. At present, DLF builds apartments under two segments – luxury and premium (mid-income).
In a conference call with investors and analysts, DLF vice-chairman Rajiv Singh said the company plans to launch 3-4 million sq ft in 2010 under ‘value’ housing and expects a margin of 25-30% from this segment. He said the company is still working on the details. On debt position, the company’s net debt stood at Rs 12,135 crore and plans to reduce the borrowing to Rs 6,199 crore by end of this fiscal year.
DLF expects to receive Rs 4,436 crore through sale of non-core assets. It has already raised Rs 1,064 crore in the first half of the current fiscal year. It expects a surplus of Rs 1,000 crore from operation and Rs 500 crore from DLF Assets, a firm set up by DLF promoters to acquire commercial properties from DLF. DLF reported a decline of 77.28% in consolidated net profit for the quarter ended September 30 at Rs 439.74 crore. Its total income also declined by 52.86% to Rs 1,810.38 crore.
Centre to states: In the face of growing incidents of protests against land acquisition, the Centre has asked states to ensure that industrial sites be allotted in such a way that no stakeholder is left unhappy. The issue came up at the meeting of state industry secretaries, convened recently by the Department of Industrial Policy and Promotion (DIPP).
The challenge before us is to see that land is readily available for industrial purposes and that everybody develops a stake in industrialization,” the land should be made available “in a manner so that nobody is unhappy with it”. Several states, particularly in the eastern region, have witnessed widespread protests against land acquisition for industrial purposes. The Centre is particularly concerned over delays due to problems in land acquisitions for large plans like Rs 1 lakh crore steel projects of ArcelorMittal in Orissa and Jharkhand, a source said. One of the proposals being debated is whether farmers parting with their assets should be made equity owners in the projects coming up on their land.