Property developers turned billionaires this year as they mopped up money from the bourses, but the middle class failed to find a decent place to live in cities after interest rates hardened amid firm real estate prices, causing a slowdown in housing market.
However, the office and shopping mall rentals continued their upward trend. The pace was more vigorous in Delhi and Mumbai, which got reflected in a consultant's report that put India's financial capital at second place in the list of most expensive office markets in the world with Delhi at eighth.
The real estate industry, pegged at $16 billion and estimated to reach $60 billion by 2010 with a growth rate of 30 per cent, entered the Dalal Street in a big way and floated 12 public issues in the year which helped it to emerge as a leading sector in terms of fund raising.
Leading the pack was India's biggest realty developer DLF, which launched the country's largest IPO of over Rs 9,000crore, followed by HDIL's Rs 1,700 crore and Puravankara Projects' Rs 850 crore. Bombay Stock Exchange launched "Realty Index" to recognise the growing importance of the sector.
The sector's strength is evident from the fact that there are seven real estate barons in a Forbes list of 54 Indian billionaires. DLF's K P Singh, Unitech chairman Ramesh Chandra and Omaxe's Rohtas Goel were among the richest Indians.
"Kushal Pal Singh is fourth on the 2007 Indian rich list with a net worth of $35 billion, making him the world's richest real estate developer," Forbes said in November.
Industry was able to attract significant interest from domestic and foreign investors keen to be a part of the real estate growth story that started from 2005 when the foreign direct investment norms was liberalised for the sector.
Investors participation was not restricted to only public offers as many private equity deals were struck. For instance, DLF sold 49 per cent stake in its seven townships to Merrill Lynch and Brahma Investments to raise Rs 1,675 crore.
The private equity deals also happened at entity level. Wachovia Corp, one of the largest financial institutions in the US, picked up 15 per cent stake in Vipul for Rs 234 crore.
Raising funds from the public and private equity markets became more attractive for developers in the wake of several regulatory decisions that restricted debt options to industry.
The Reserve Bank of India increased the risk weightage to discourage credit to realty sector. The government curtailed access to overseas borrowings for integrated township.
Despite monetary steps, realty demand did not dampen to the desired extent as the growth in income provided the cushion, Crisil Principal Economist D K Joshi said.
Echoing similar views, global realty consultant Jones Lang LaSalle Meghraj Chairman Anuj Puri said: "There was slackness in the housing demand. However, the overall demand still continue to outstrip supply as a result of which prices either remained firm or in select location went up."
Puri noted that despite expectation of property prices cooling off in retail and office segments during 2007, rentals rose by average 20 per cent because of delay in supply.
Demand-supply mismatch coupled with increased confidence from investors, notwithstanding the concerns expressed by the government and its various agencies over realty sector being overheated, was more than enough to enthuse developers to go for expansions and also gear up for future by acquiring land.
Among the big-ticket land deals, DLF acquired 38 acre at Rs 1,675 crore in the national capital. Mumbai Metropolitan Region Development Authority attracted bids over Rs 2,700 crore for three plots in Bandra Kurla Complex.
The year also saw real estate industry announcing an investment of more than Rs 1,00,000 crore across the country. DLF bagged a township project spread over 9,000 acres in Karnataka, which it would develop in partnership with Dubai-based Limitless at an investment of Rs 60,000 crore.
With organised retail taking shape in the country despite some resistance in few states, industry increased its focus on developing shopping malls.
DLF and Unitech, which concentrated more on residential segment, announced big investment plans for creating retail space. Unitech is developing 48 malls at a cost of Rs 20,000 crore while DLF plans to invest Rs 16,000 crore over four years to develop 20 large shopping malls across the country.
Proliferating Special Economic Zones emerged as another opportunity for the industry that already has its hands full with huge shortage of realty space across major segments. C&W pegged the realty demand at 1,900 million sq ft by 2011.
In order to bridge the huge demand-supply mismatch and also to meet the increased demand from end-users for quality products, the industry partnered global realty developers to execute various projects on time. DLF tied up with US-based Hines to build a 15-acre project in Gurgaon. It also partnered Dubai-based Nakheel to construct two big townships.
Various other global developers evinced interest to foray into the Indian market. US-based Trump Organisation announced it was scouting for partners to enter India, while Dubai-based DAMAC Properties and Rakeen, the state-owned real estate firm of the United Arab Emirates, said it would invest up to $5 billion each to develop properties.
Diversification was also the buzz word in 2007 as major developers announced plans to venture into other sectors like telecom, retail, infrastructure, commodity and power. Hot telecom sector caught the fancy of all the major players like DLF, Unitech, Omaxe, Parsvnath and Indiabulls who queued up for licenses to launch mobile services.
While Indiabulls announced plans to set up commodity exchange in tie up with public sector trading firm MMTC, Omaxe and Ansal entered into power and Parsvnath in retail. DLF also announced foray into insurance and asset management ventures.
Repealing of Urban Land Ceiling and Regulation Act by the Maharashtra government in November was another major highlight of the year as it will open new opportunities for developers because of an expected increase in land supply in the state.
"Repealing of the act would unlock 74,000 hectares of land," Puri said while hailing the decision.
With market regulator SEBI all set to allow Real Estate Mutual Funds and Real Estate Investment Trusts in 2008, paving the way for small investors to ride on the success of sector, there is no doubt that another good year is in the offing.
"Huge growth of investment is taking place in the sector. Like last year, 2008 looks equally bright. FIIs and PEs will bring a lot of money into the area and there will be a lot of activities. Like the agricultural revolution, I believe India needs one housing revolution and it is hopefully to start in 2008," Hiranandani Group's MD Niranjan Hiranandani said.
With Rs 6,000 crore-IPO of Emaar MGF lined up for the next year, it seems that real estate sector will have another good year in the capital market. The new year might also bring a real estate regulator for the national capital.
In terms of property prices, consultants feel industry might witness a correction in office and retail rentals owing to increased supply but housing segment is expected to remain bullish due to demand-supply mismatch.
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