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India Realty 2010 Conference – A Snapshot

September 9, 2010

The recently concluded realty conference provided key insights on the real estate sector, with focus on infrastructure growth, PE investors’ views, IPO success factors, asset class comparisons etc. There was a general consensus that Infrastructure development supports real estate growth, and that the two should happen in tandem to ensure an all round development for any region. Growth of population and rapid urbanization has lately put tremendous pressure on existing infrastructure in cities. It is evident that the infrastructure short sightedness has created enormous problems in planning for all future expansions. Public Private Partnership (PPP) projects are the order of the day, and we should have many more PPP projects to support the overall growth. Speakers were also of the opinion that the premium generated from sale/lease of land should be spent on infrastructure projects like roads and waste management and should be monitored extensively to ensure timely completion.

A few talking points were:

  • Better connectivity in regions (Bangalore, NCR) have always ensured that the real estate prices remain in the affordable price bracket, and don’t shoot through the roof
  • Trans harbor sea link is expected to get price bands of various micromarkets to an affordable level
  • Delhi Metro has increased the connectivity of the city to its outskirts, which has led to the evolution of residential & commercial clusters outside the city
  • Kharghar in Navi Mumbai has undergone tremendous change, and has virtually come up as a self sustained town in wake of the airport that is still in a nascent planning stage.
  • Ring road and good connectivity for Bangalore has ensured that prices across the city have often been in the range of 3000-6000 INR

There has been a steady shift in priorities of the PE players in terms of their investment decisions in real estate firms:

Pre 2007: Land acquisition was important

2007: Quality of land became important

Post 2009: Execution Capability and Project Commissioning Experience are considered utmost important

Private Equity firms focus on project execution capability, and timely completion; Land acquisition, and their quality have now become secondary. They have also been keen on forming a company, where the investable projects could be pooled in followed by an IPO to provide them with an exit route later.

Investors are now keen to invest in realty firms’ IPOs that have justifiable valuations, strong cash flow projections and sound project execution capabilities, more than relying completely on land bank valuations. Land ownership issues and project delays were said to have huge implications on the success of any IPO.

With regards to the decision to go ahead with a specific asset class basis the location and the demand, has become extremely critical. At any given time, asset classes have behaved differently in terms of the variation in rentals/capital value that they command. Research, thus becomes critical when developers opt for residential, commercial, SEZ, hospitality and retail. In recent times, planned retail & office spaces have been converted into residential ones in Mumbai and NCR.

Overall the event provided a good platform for developers to meet, and discuss key issues. The conference was attended by leading infrastructure and real estate developers. It finally concluded leaving a lot for the government and the developers to ponder on and to ensure that we meet the housing and infrastructure demands in times to come. For now though, it seems like an uphill task, but achievable anyways!

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