Building an alternate to ‘realty’

Major players in this sector are attempting to diversify their businesses by exploring verticals like education, aero park infrastructure development and maintenance based activities (fabrication of doors, windows, fittings and fixtures) for such projects. As per JLL’s monthly real estate monitor Pulse, “In India’s seven biggest cities, less than 10 per cent of developers have consistently delivered projects since 2005. The numbers point to a fragmented market with thousands of developers, many of whom have been in the business for barely a decade.” 

Ajit Chordia, MD, Olympia Group, and President, CREDAI (Confederation of Real Estate Developers Associations of India, Chennai), says, “Real estate development in the city is fragmented. Already hit by market slump and excess supply situation, players operating here are considering other options, including diversification. We are in deep stress. New business opportunities that are on our radar include fire tenders’ maintenance, fabrications of doors and windows. We are looking at products to understand the scope of other business.” 

Other developers are evaluating a move from core business into arenas that look promising at this point in time – like the retail realty sector. Sunil Reddy,  Director, Alliance Group, says the group could look at mall development in the city where it has land banks to the tune of 15 million sqft for potential development in locations such as Oragadam, Kelambakkam, Pallavaram and Padi. 

Having entered this market, which, in his words, is “better” than Bengaluru, he says though mall plans are not even on the “drawing board” stage, the group may eventually consider setting up a mall in their Orchid Springs project (Anna Nagar), in which the final phase of development (1 million sqft of the overall 3 lakh sqft project) is expected to be over in nine months.  

The demonetisation is being seen by some in the realty sector as a major but temporary impediment to business. When developers were probed about its impact, they seek to position the city’s realty market as a “clean and transparent” one. Prakash Challa of  SSPDL Ltd, a BSE-listed Infrastructure and real estate development company, claims the primary market does not involve a ‘cash component’ as far as city developers are concerned. It is only sale of plots and secondary housing units that may have an element of cash. But such kind of transactions are more in Tier II and III destinations. 

“There is a mismatch between guideline and market values. As far as organised players are concerned, most transactions are carried out “in white,” says the former head of CREDAI, Chennai, when pointed out to innumerable housing transactions taking place in this part of the country that call for more “hygiene” in the sector.  

But an industry veteran has a different take. “The ruling norms operative for cash transactions is 70:30 and transactions typically include incidental costs. What does incidental or transaction cost mean? Why is price correction not happening here unlike in Bengaluru or Mumbai? One off sale cannot be taken as the guideline value (GV). We need realistic GVs. It has to be revisited as the current GVs are absurd,” he said, sharing his views on condition of anonymity. 

Pointing to the exorbitant land values in Sriperumbudur (Rs 2 crore per ground), Rs 1.5 crore or Rs 2 crore in OMR stretch, Rs 3 crore per acre in Panaiyur and Rs 1.5 to Rs 2 crore per ground before the posh Thiruvanmiyur or Adyar area, the corporate veteran says the state government has to react and leverage the city’s infrastructure and address the industry grievances that are triggering the flight of capital to other locations. “As far as we know, this is a dead market and unless government intervenes, it is difficult to survive,” he said, noting that extremely low resale values are making it more prudent to park the money in banks rather than real estate investment. 

So will introducing Unique Property Identification Number like in the capital akin to Aadhar card, help? “We have to see its success there. It is tough in Delhi with all people holding property on Power of Attorney basis. It will be a legal nightmare. The litigation with respect to all properties should be considered. Otherwise, the move will be stopped by the courts themselves,” opines Appaswamy Real Estates CEO TSS Krishnan.  Ashutosh Limaye, the Head of Research & REIS, JLL India says, “In such challenging market conditions, those with poor track records will be left behind and as the market expands and matures, consolidation is expected to improve market transparency and further boost foreign participation. A lack of financial discipline and the failure to fulfil promises by some of these companies have damaged the market’s credibility and have affected buying sentiment.”