Tuesday, September 30, 2008


Anuj Puri, Chairman & Country Head, Jones Lang LaSalle Meghraj

Despite all the misgivings about a so-called ‘global recession’ and the US subprime crisis, it is a good time to be doing business in India. For quite a while now, this country’s economy has been robust enough to sail through any turbulence. India has the ability to show high single-digit growth rates for very long periods of time. Moreover, India is a saving-oriented nation that has a domestic savings rate of 33%, which means it is better equipped to absorb the fallout of variations in the economy. This is more than the extravagantly wasteful economies of most developed countries – including the US – can claim.

Nevertheless, many Indian corporates are yielding to confusion and uncertainty about the future. In many discussions with my peers, I have noted a generalized fear that the worst may yet come. The logic seems to be that the economic fluctuations we have been witnessing recently are the direct result of a global recession, compounded by the US subprime crisis. However, India is not primarily grappling with foreign-induced recession fallout, but with problems arising from its own soaring inflation rates, which had recently risen to an all-time high of 12.75%. We are grappling with the effects of high crude oil prices, rapid appreciation of the rupee and the consequent reactions of the stock market.

More specific to the property market – we are indeed witnessing a correction, but this is predominantly brought on by the sharp 200-300% rise in property rates seen over the last two years. It is perfectly natural and expected that there would be an adjustment of such irrational growth.

Do we have a challenge situation on our hands? Yes, but it is one brought about by lack of faith and information. The origin of the challenge does not lie in foreign markets, but our own. Nor is the challenge anywhere as big as its is being made out to be. India is nowhere as vulnerable to fallout of the US recession as its is being fashionably assumed. I’d like to point out here that according to international credit rating agency Standard and Poor’s, India and China are in the category of ‘not vulnerable’ countries.

Asia Pacific is only about India and China now. No other part is experiencing any exponential growth, and India is among the biggest growth drivers. Foreign players will continue to invest in India and China and cut back markets that are less of a priority, especially on the developed ones where investments take longer to pay off.
However, unlike China, India's growth story is a domestic market driven growth. India is better placed than China to withstand the worst effects of an economic downturn. China, unlike India, is more susceptible to the US financial crisis because it follows the East Asian export-led model of economic growth.
In any case, neither India’s nor China’s markets are particularly integrated with the United States, since both have market fundamentals that have separately evolved from the West over the past 60 years. China and India will not participate in a worldwide recession and will, in fact, be hedges against this. All the prophecies of doom that are floating around these days seem to rely on the erroneous assumption that the global markets are pulling out of India. The fact is that lenders and investors have merely become understandably and justifiably cautious.

China and India possess 40 percent of the world’s population. While only 20 percent of this can purchase to international standards, combined this is still larger than the U.S. disposable middle class income. Moreover, both largely supply much of the world’s consumer goods. Right now, India’s fundamentals are very strong and so is domestic demand. Only the more export-oriented businesses are likely to suffer in the short term - mainly firms in for an IPO, or financial services companies.

We all know that there has been a slowdown of sorts in the real estate sector, but we are equally aware of the fact that this slowdown was predicted anyway, and that it is specific only to some overheated markets in the North and the recent stock market fluctuations. Some domestic investors have certainly sought to sell their holdings and withdraw from the property market. However, this does not represent the international investor scenario and is not even altogether bad news. It is, in fact, positive in the sense that real estate values are correcting in overheated pockets, leading to a brake on illogical land valuations. Major players are still making serious inquiries.

How will real estate companies deal with the current scenario? It is very clear that diversification and corporate performance will be the watchwords in the future. Of course, this is a time of change, and change often gives rise to uncertainty. But corporate history has amply displayed that strong companies that emerge even stronger in turbulent times always react to change with renewed focus and energy.

They react by improving their cost efficiencies. They do it by concentrating on business, maximizing it and leveraging their intellectual capital. They do it by becoming more client-oriented, helping their clients tackle the economic situation more efficiently by change their value propositions. They do it by being even better employers, making talented employees feel valued and enlisting them to help cut costs. And they do it by raising their efficiency bars, clarifying their vision and improving their scalability.

Recession? Ladies and gentlemen, India's economic growth will be on a higher trajectory (8 to 9 per cent) in the next three years. Infrastructure spending, domestic consumption and investment will continue to drive economic growth - growth that will attract increased capital flows, be they long-term or short-term in nature – into the sector of our business operations. India is a trillion dollar economy today. At an annual growth rate of 8% over the next seven to eight years, it will double this figure –and economists agree that India’s growth story will continue over the next three decades.

For companies with a winning hand of service modules and deeply entrenched market presence, the term ‘global recession’ is little more than a call for differentiated strategies to accommodate evolving market dynamics - not doomspeak and panic. Let us take inspiration from the case of Germany. Companies there are making the right goods and delivering the right services at the right time. China, India, Russia and the countries of central Europe are rapidly expanding their economies and need the capital goods that German companies specialize in. The machine tool industry, for example, has seen orders grow at around 10 percent annually for the past three years.

Let us take a brief look at the questions that investors will be asking themselves in the current scenario:

• What are the company’s products?
• How are the company's products better placed compared to those of the competitors?
• What is the company's past financial performance?
• What are the initiatives that the company is taking – to mitigate competition, and to manage risks associated with the industry?

The only real question is whether our collective entrepreneurial spirit will be encouraged or discouraged by the recession in the US. The current scenario will certainly separate the ‘men from the boys’. In a recession, fortune favours the brave.

Tuesday, September 23, 2008

Honourable Kumari Selja to open Cityscape India

Minister of State (Independent Charge) for Ministry
of Housing and Urban Poverty Alleviation to outline affordable housing initiative to international investors & developers at Mumbai real estate showcase

The honourable Minister for Housing and Urban Poverty Alleviation, Kumari Selja, will be cutting the ribbon at this year’s Cityscape India, which is due to take place at the Bombay Exhibition Centre on 8-10 December 2008.

After the official opening the honourable Minister will address local, regional and international delegates during the opening of the Cityscape India Conference. Her speech entitled ‘Affordable Housing For All In India’ will outline the initiatives to develop residential property, not only for India’s burgeoning middle class, which is now estimated at 325 million people, but also for India’s lower class, which still represents approximately 70% of India’s 1.2 billion population.

“28% of India’s population now lives in conurbations and that figure is growing rapidly. The demand for affordable housing is immense and potentially the long term returns for investors and developers is colossal,“ said Graham Wood, Exhibition Director.

Cityscape India is an annual international networking exhibition and conference focusing on commercial architecture, property investment and development and attended by the most significant investors, developers, architects and consultants.

Cityscape India 2007 officially became the largest business-to-business real estate event in India attracting over 5,000 participants from 38 countries celebrating the best in real estate, architecture, urban planning and design. The event was launched in 2007 to provide the country's real estate sector, now valued at over $15 billion, a networking platform where domestic developers can source international investment contacts. It is also a platform where international developers can meet Indian investors.

This year, Cityscape India is set to welcome more than 8,000 participants from around the world. "In addition, leveraging its relationships in the global investment market place, Cityscape will reach out to over 250,000 senior decision makers seeking to invest in one of the world’s fastest growing economies," said Graham Wood, Exhibition Director.

New this year two parallel conferences entitled ‘International Real Estate Investment and Development’ and ‘Infrastructure Finance & Investment’ will take place alongside the exhibition. Recognised as India's leading networking conference, participants include, the Trump Organisation of the United States, Reliance of India and Nakheel of the United Arab Emirates.

Donald Trump Junior, Executive Vice President of Development and Acquisitions for the Trump Organisation, spoke at last year's Cityscape India, and is looking forward to returning. He added: "Cityscape India has certainly come in at the right time to provide a quality business-to-business networking platform."

There will also be an Infrastructure Conference addressing one of the most important topics in India with respected names presenting their experiences and knowledge of effectively overcoming challenges to raise equity and build public-private partnerships.

The Cityscape India 2008 Real Estate Awards will also honour leading real estate professionals and companies for their outstanding contribution to the industry. The award categories include: Most Innovative Finance; Best Real Estate Marketing Campaign Award; Best Corporate Social Responsibility Project; Best Urban Design and Master Planning; Best Developer – Retail Project; Best Developer – Commercial/Office Project; Best Developer – Hospitality Project; Best Developer – Residential Project Award; Best Developer – Mixed Use Project.

Platinum sponsors of Cityscape India 2008 are Limitless and Soundlines. Limitless, a Dubai World company, currently has nine projects – worth over $100 billion – in India, Saudi Arabia, Malaysia, Vietnam, Jordan, Russia and the United Arab Emirates. Soundlines has diversified into real estate, construction, HR consultancy, hospitality, travel and tourism and healthcare with offices in UAE, Saudi Arabia, Qatar, India, Nepal and Bangladesh.

Gold sponsors are Tanmiyat Group, one of the Middle East’s leading real estate and investment companies, with joint ventures and projects across the region, including Saudi Arabia, the UAE, and Jordan, with investment plans for India, China and Tunisia.

Friday, September 12, 2008

Suggested policy changes in the upcoming Budget for the retail sector

- Anuj Puri, Chairman & Country Head, Jones Lang LaSalle Meghraj:

1. Retail - specifically shopping malls and centers - should be granted industry status. The lack of industrial status does not allow developers to effectively address major issues such as traffic regulation and staff satisfaction/retention. Nor can retail avail of industry-appropriate subsidies, benefit from more favourable import/export laws or introduce the level of transparency required to attract more foreign players

2. Service tax as pertains to rentals should be clarified and freed from existing ambiguity. Service tax rentals paid for property that retailers occupy is an unrealistic financial burden. Thanks to increased competition, retailers are already operating on thin margins, and the added encumbrance of service tax only serves to make goods costlier for consumers.

3. Electric supply to shopping centers and malls should be incentivized/subsidized, in line with similar benefits given to other public spaces.

4. The budget should incentivize the creation of cold storage chains to help reduce wastage (approximately 30% of products are currently wasted for lack of these)

5. The budget should facilitate the creation of retail-related community centers in Tier IV/IV cities and towns that are undergoing rural consolidation, to help retail spread to these locations in a uniform and systematized manner

Wednesday, September 10, 2008


Anuj Puri (Chairman & Country Head, Jones Lang LaSalle Meghraj)

We are at a defining point in the history of Indian real estate. Rarely has a business sector seen so much churn, conjecture, simultaneous pessimism, optimism and prophetic predictions in the space of just a few months.

To say the very least, these are interesting times. There has been a slowdown in Indian real estate because an amalgam of reasons - overheating of prices in certain regions, reduced liquidity among developers because of the credit crunch and a watch-and-wait stance among property buyers as they anticipate a blanket correction in the sector. This cannot be attributed solely to the credit crunch and the US recession – property and interest rates were inflated to begin with. Nevertheless, we are still given to focusing more on reasons beyond our borders than those within them. There is a currently fashionable saying making its rounds – when the US sneezes, the whole world catches cold. In the case of India, however, I beg differ.

India - and for that matter China - represent an economic scenario that has evolved separately and on very different parameters from the economies in most developed countries. It is an emerging economy, with an emerging and maturing real estate market. The fall in demand will prevail for approximately ten to twelve months, but it will not be of a magnitude comparable to that of other countries. India continues to be very attractive, but foreign investors are now justifiably awaiting greater transparency and stability.

Still, prices are doubtlessly stagnating and there may be a more generalized correction over the next one year. However, many locations and properties will continue to be in great demand. The retail and commercial space sectors have seen a major sea change on the demand side, completely redefining what is expected from the coming supply. No longer can we adhere to traditional standards of format, efficiency and location – everything is changing, ladies and gentlemen, and we must change with the times.

Our thinking must change, because the sector is changing. I cannot emphasise this enough. We are on the threshold of an awakening into the Era of Transparency. From this point in Indian real estate history onward, we will forever need to look beyond short-term profitability and concentrate on making our projects institutional quality assets through more tie-ups with international expertise.

In commercial projects, the onus is now clearly on large floor plates, workplace ambience and conformity to international sustainability standards. In fact, our thinking must now permanently reorient to global best practices and eco-friendly projects with LEEDS certification.

In the retail sector, the sad truth is that there is an oversupply situation brewing, mainly because the current supply is opportunistic and not based on actual demand. Developers are building malls in catchments where land is available, without studying existing and potential demand.

In residential real estate, most large development houses have now woken up to the fact that affordable housing projects have the fastest absorption rates and are focusing on this hitherto neglected sector. It makes both social and business sense. Business sense in terms of the volumes the market is offering that developers can cater to, and social sense because it provides buyers of economical housing more options to choose from. The demand in terms of units is phenomenal and developers getting into this segment can build for years to come.

Yes – interesting times. We are in the eye of the storm and therefore do not adequately sense the full extent of the turbulence all around us. However, the current market dynamics are already serving the required purpose – bringing about a Indian real estate Renaissance. Quality retail and commercial spaces in tune with the international blueprint are arriving, and developers are now launching housing projects for the common man as never before.
May the future begin.