The markets in Tier I and II cities are more secure

Mr. Brotin Banerjee, MD & CEO, Tata Housing has over 12 years of experience in across key TATA Group companies. During his tenure in Tata housing, Mr. Banerjee played a crucial role that revolutionized the face of the real estate sector, by pioneering innovative concept of low-cost housing under Shubh Griha brand. He is a recipient of the Pathfinders Award for the "Most Enterprising CEO" at the Realty Plus Excellence Awards 2010 for his contribution in shaping Tata Housing Development Co. Ltd. as one of the most innovative, customer centric and successful companies in Real Estate today.

MakaanIQ got an opportunity to interact with Mr. Banerjee. In this brief interaction he shares what is in store for the realty sector in the coming few years….

1. What is your medium term (9-12 months) outlook for the real estate market in India in general and South India in particular?

While India’s economic growth has definitely slowed, its growth rate is still considered moderate, especially in comparison with the volatile economic landscape currently prevalent across the globe. With regards to the upcoming year, we would anticipate that the housing construction sector continues to grow, albeit at a slightly lower pace, as the demand for housing still appears to exceed supply, and the weakening rupee makes India an attractive real estate investment destination for non-resident Indians.

The markets in Tier I and II cities are more secure. According to a CRISIL report, the sales of new residential apartments in these emerging markets are estimated at Rs. 180 billion in 2012. Price appreciation is not the sole determinant of long-term attractiveness for investment. Potential for demand growth, price stability, quality of infrastructure, and state government focus on development are the other key determinants.Overall, with interest rates rising and the cost of home loans becoming dearer, coupled with continued price escalations - oversupply has set into the residential markets of Mumbai and Delhi.

While, markets in the South look to remain relatively stable. For the South Indian market, the past year has been vibrant, especially Bangalore. We hope the residential segment to see a good response this year as well. In south India the IT sector has given increments to its employees in the range of 3-5% which is less than inflation, this indicates that the disposable income of the prospective customers has gone down. In such a scenario we do not expect much movement in the segments that are greater than 50 lakh. However, below 50 lakh segment is doing well.

The markets in South India, specially the Silicon Valley have been gaining momentum. The property demands have boosted the sale in units in the second quarter of 2012. The city has seen a great demand for commercial and residential spaces alike. There are certain areas which are seeing greater demands than the others. This can be attributed to infrastructure development, strong investments sentiment and potential for capital appreciation.

The South residential markets have remained resilient in the past few quarters relative to the significant decline recorded in the sales volume of Mumbai and NCR. Always a price sensitive market with buyers focused on affordability, these cities had developers adopting a strategy to lure potential buyers by offering right products at right price band. With the entrance of expatriates the dynamism of the markets however are changing.

The recent Jones Lang Lasalle report ‘Estate South 2012 – Accelerating Growth' that sought to analyse the real estate footprint of South India ends up noting that ‘Southern India has for long been the silent crusader, building and strengthening its real estate development as one of the most sought destination in the country'. Towards this, the report cites new milestones as commercial advantage of Bangalore, infrastructural progress of Hyderabad, industrial and residential highlights of Chennai or the emergence of upcoming cities such as Kochi, Coimbatore, Visakhapatnam and Mysore.

2. How is real estate in South India different from rest of the country specially North and West markets?

At a time when most developers in India are battling high interest rates, sluggish sales, delays in new launches and a funding crunch, analysts are upbeat about the real estate South India.

Cities such as Bangalore and Chennai have attained a place on the global real estate map, a status that was limited just to Mumbai and Delhi in the past. While South Indian cities constitute nearly 45% of the country's office space, the stock of 140 million sqft in these cities is projected to grow at a CAGR of 8% for the period 2012 - 2016, lower than the projected national growth of 11%. This implies that the southern cities, particularly Bangalore is relatively rationalized in terms of medium term supply of office space, and the cities have chosen a strategy of pursuing selective quality developments over rapid expansion.

While this would keep their share in India's office stock range bound at 37%-40%, the South Zone's vacancy rate by end-2012 is expected to be 16%, considerably lower than the pan-India vacancy rate of over 20%.South India's retail real estate market has gone through a makeover in the past decade when its retail stock grew from a mere 1.6 million sqft in 2003 to 13.2 million sqft in 1Q12

There is no speculative pricing in Southern India, and developers are not looking for super profits.If pricing is right and ticket sizes are small, and the rate per sq. ft is much more affordable and the consumer finds the package a lot more attractive. The open spacesand greeneryaround are very attractive features and well.

3. What is your opinion on Luxury or Public Housing? As a developer, which is more sustainable?

As a comprehensive real estate developer of choice, Tata Housing straddles across all consumer segments from value housing to luxury housing by offering products ranging from Rs. 5/- lakh to Rs. 14/- Cr.,

The growing housing shortage is a culmination of the high rate of urbanization with a majority of housing stock catering to the premium segment, thereby incapacitating a large section of society from owning homes. The high cost of real estate, limited resources and inaccurate product offerings targeted at consumer groups have collectively contributed to the economically weaker sections and low-income groups being severely underserved. This is one of the primary reasons for Tata Housing to choose to invest in public housing in a great way.

While most developers would opt for luxury or premium developments, it is only those developers who has learned to develop affordable housing as sustainable business model would get into the value and affordable housing as it require technology adoption and changes in the core operations of the company.

4. How is your experience in working with the Public sectors in the infrastructural development, like Bangalore Metro Rail Corporation Ltd (BMRCL)?

Not applicable to THDC

5. The number of unsold inventory is increasing in all real estate markets, what could be the reason behind this? Just the soaring property prices or any other factor attributing to it?

• Soaring property prices is one of the primary reasons

• Availability of loans to the end users and high interest rates

6. What policies you look forward to from the Government and RBI that will be a relief to home buyers across India?

You have mentioned only for developers, for customers take it from our budget expectation

The RBI and the government should consider that there has been a significant rise in cement, steel and labour costs over the last 3 years which have had a negative impact on the real estate industry. On the monetary side, we have been confronted with a period of high home loan rates, while consumers are paying more by way of introduction and subsequent increase in service tax. On a day to day basis, the developers’ fraternity battles administrative delays, contradictory approval requirements and liquidity crunch due to lack of infrastructure.

Financial incentives at the national level include capital subsidy for PPP initiatives, tax incentives for affordable housing developers, priority sector credit for home loans up to Rs. 25 lakh and viability gap funding, as a few that will help the sector grow optimally. Initiatives like going for eco-friendly homes and easy access to financial aid, are added incentives for consumers.

7. What is the current trend in the Commercial Real Estate Market? How are developers meeting the increasing demand of the corporate sector? Which are the upcoming corporate bases?

On the commercial real estate front, a recent Jones Lang Lasalle report noted that it is primarily driven by the IT/ITES sector as it offers large office spaces at affordable rents providing lower operational costs to occupiers. ‘Over 64 per cent of the country's IT SEZs were housed in the Southern cities,’ it observed.

With a total stock of nearly 140 million sq. ft in the major cities here, the vacancy rate by the end of 2012 is expected to be 16 per cent; considerably lower than the pan-India vacancy rate of over 20 per cent.

The commercial property segment also continued to be in an upbeat mode with Bangalore, Chennai and Hyderabad accounting for nearly 45% of India's office stock, largely due to the IT and ITES sector.

8. What can the home buyer’s expect from Tata Housing over next 1-2 years?

• Project of an international quality, theme and architecture across India
• Green, sustainable and integrated developments
• 3-4 value and affordable housing projects in metros and mini metros