Urbanization leads way for Realty Investment in India
With a population of over 1.3 billion people, India stands as the second most populous country in the world. And the population growth rate being as high as 1.58 per cent India is believed to take the numero uno position by 2030. More the population, more are the housing requirements. Taking into consideration the steady rise in development of private sector, urbanization has accelerated in the nation. This urban transition has resulted in a massive expansion in urban infrastructure and services. At present, nearly one-third of India’s population is estimated to live in urban areas. This is projected to grow to 50% by 2050. The constant changes in the demographics and rapid urbanization is leading to substantial growth in the real estate investment industry. Present Scenario The expansion is greatest in emerging cities, where commercial development has led to better growth opportunities and thereby promising a better quality of life. To acknowledge the growing trend of urbanization, the Union Cabinet recently cleared the proposal to create 100 smart cities and the rolling out of a new five-year urban development mission for 500 cities. While other smart cities are in the pipeline, India’s first such city in Gujarat - Gujarat International Finance Tec-city (GIFT City) has already been talked as the landmark destination in the city. More GIFT cities can cater to India’s large financial services potential by offering global firms a world-class infrastructure and facilities. This will attract the top talent in the country by providing the finest quality of life all with integrated townships, IFSC and multi specialty special economic zone (SEZ). In addition, Atal Mission for Rejuvenation and Urban Transformation (AMRUT) along with Housing For All mission of the new government is a positive indicator in terms of real estate sector’s growth. This will further cater to the demand of young homebuyers especially the ones who are migrating to urban areas for better employment opportunities. But the attempt at transforming the urban infrastructure burdened with ever increasing population is definitely not an easy goal to achieve. Challenges The main challenge is going to be on how the urban development sector, state governments and urban local bodies will make effective use of huge investments by the Centre and other sources in creating inclusive social and physical infrastructure. “In the last decade private sector played an important role in creating physical infrastructure where banks were the major fund providers. But the outstanding bank credit to the infrastructure and real estate sector has increased gradually with a compound annual growth rate (CAGR) of 39.5 per cent over the last decade. Bad loans or non-performing assets in the infrastructure area are asserted to be the major reasons for this. Even in this current scenario the private capital still plays a critical role in funding the growing and changing need for real estate and its supporting infrastructure,” Prabhat Ranjan, CMD, Olympeo Infrastructure Pvt. Ltd, said. Each day we read about Private Equity firms funding not just the aspirational government initiatives but also that of private developers. Transparency of these projects is another factor that will decide the final outcome and utmost benefits to people. Transformation Over the last decade, numerous corporate and institutions have ventured into real estate sector backed by financial institutions and banks in expanding the market thereby brining in professionalism and transparency. International best practices in planning, design, materials usage and construction technologies widely adopted by developers resulting into world standard apartments, condos and township. The cabinet approval of the long-pending Real Estate (Regulation and Development) Bill, 2013, is a significant first step towards bringing in transparency and governance to the sector. The new bill will create the framework for a regulatory body, the Real Estate Regulatory Authority (Rera), will act as the central agency to co-ordinate the development of the sector, as well as promote transparency, customer protection, benchmarks, efficiency and competitiveness. The move will also boost domestic and foreign investment in the sector and help achieve the Indian government’s objective to provide housing for all by 2022 through enhanced private participation. Goods and Services Tax (GST) would provide additional impetus to real estate sector by bringing down the cost and the time for material movement which would improve cash flow into the sector. More importantly, as the GST regime is expected to impart greater transparency through market mechanism in price discovery. The latest announcement by the Prime Minister- Narendra Modi, unveiling the framework for three mega flagship schemes, the Smart Cities Mission, AMRUT & Housing for All Mission, is providing more clarity on how the government is planning to achieve the ambitious goals that they have set for themselves. Honorable PM has rightly highlighted the importance of planned growth of cities; this puts a lot of responsibility on the state and city administration to come up with a comprehensive and clear master plan. Since huge emphasis is given to strengthen local bodies, the perennial problem of corruption, capability and accountability at that level needs to be addressed. Implementation and close monitoring of interest subvention and other schemes along with the thrust to develop urban infrastructure would be a boon for realty sector.
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