Real Estate : The Past, The Present and The Future
Real Estate : The Past, The Present and The Future
The opening up of Indian economy since July 1991 has brought about some interesting and exciting trends in the Indian Real Estate. To continue this, further opening is required which is more challenging. Are we prepared of it ?
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“History never repeats itself, but it does often rhyme”
- Mark Twain
First week of July, 1991 : in just three days Indians experience a shocking devaluation of rupee by 20%.
This historic week, marked the beginning of a new liberalised and open economy where the private sector had a much larger role to play. And over the years, the government continued to work in that direction. A decco of few interesting trends in Real Estate over 32 years has some great stories behind them.
Real Estate becomes bank friendly
The devaluation and liberalised laws for NRI investment brought about large NRI inflow into Real Estate. The attractiveness of this NRI inflow resulted in developers’ openness in receiving the full sale consideration through the banking channel Today if one finds many developers who have 100% sale through banking channel and today if many state governments see high stamp duty collections and then we know where it all began.
The Leader becomes the Laggard
The darling of India Real Estate then was Nariman Point - the most sought after corporate address. During 1991 to 1995, it experienced an unprecedented rise in prices. However, in 2023, many offices building in Nariman Point are at the same prices as in 1995 - making Nariman Point possibly the only CBD in the world to see practically zero appreciation for 28 year. And this again was brought upon by liberalised economy which was now looking for offices with modern designs, larger floor plates, more parking spaces and proximity to residential spaces. Nariman Point had none of these.
Geography becomes History
Home prices in Mumbai typically were the lowest in Northern most Mumbai and price typically moved higher as one moved southward. The prices of residential properties in Cuffe Parade and Malabar Hill (South Mumbai) were then about 10X of North Mumbai prices. Today this North-South divide of just about 3X is a result of movement of offices to suburbs, work from home and need for modern amenities. All these are outcomes of liberalisation over last three decades.
Size gains Muscle
In 90s, the size of first home for a Mumbai middle class was 1 BHK. Now, 2 BHK occupies that space. But the real surprise is the 3 & 4 BHK sized apartments. Earlier these homes were built only in the expensive residential locations. But now with lifestyle changes like need for home office, yoga room, larger wardrobes etc., one can see a larger number of 3 & 4 BHKs projects across Mumbai. 5000 sft and 10000 ft apartments, once unimaginable, are now being offered by Developers.
There are many more such interesting trends and are across various Indian cities. The moot point, however, is that during the last three decades, liberalisation and opening up have brought about sea change and mostly for the good. The next few decades too would require efforts in similar direction. A few key activities that need an increased role of private sector :
1. Increasing Land Supply
Indian cities have ample land, however, disputes (between co-owners, landlord/tenants, govt/lessee etc. ) and bottlenecks in redevelopment significantly contract housing supply within the city area across India. It is unfair to expect courts to settle these disputes, especially since most of these are commercial disputes in the garb of legal suits. The more appropriate way of settling these is through establishment of private reconciliation and arbitration centres across India. Such private authorities along with fair policies to encourage redevelopment of old city areas will not only increase fresh housing supply but will also put brakes on the unhealthy trend of horizontal expansion of cities into green zones.
2. Streamlining of Approvals
Many may not be aware that in early 90s, approval and pricing of IPOs & Rights issue for any public listed company was done by a govt body. Today, this is largely done by private merchant bankers, licenced by SEBI. Applying the same to Real Estate - why can regulatory authorities not licence private Architectural and Engineering firms to approve building plans ?
3. Revenue Balancing
According to different estimates 25-30% of money paid by home buyers goes in govt coffers (through stamp duty, GST, development charges etc.). Most other industries typically pay 12-18%. So the share of govt in the receipts from home buyer is not only very high but it also goes against making housing affordable. Rationalisation of tax laws needs increased discussion.
All these three suggestions may sound shocking to many but so did the devaluation during three days in July 1991. History never repeats itself, but it does often rhyme.
- Deepesh Salgia is author of the book Real Estate : The Good, The Bad and The Unanswered
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