October , 2018
'Affordable Housing' needs more attention in the 'City of Joy'
16:05 pm

Abhijit Das

I met up with an old friend of mine recently based out of Mumbai, who had come on work to Kolkata. While we spoke on work and related topics, one subject which my friend seemed exceedingly overwhelmed with was the snazzy new Kolkata. I watched the excitement in his eyes when he kept on talking of how awesome Kolkata looks at night, the well managed traffic, the overall upswing in public transportation infrastructure, the landmarks at New Town, the large new hotels and generally an overall feeling of energy around.

Fortunately, I have been hearing similar positive vibes from almost everyone who’s been visiting Kolkata over the last 2-3 years. I have been hearing positive vibes even from the residents of Kolkata who had been habitually critical of the city. There is evidently a quantifiable perceptional upswing about Kolkata in general and that is what the city needs the most.

Real Estate has a direct dependency on the macro-economic ecosystem of an economy. Hence, for real estate to evolve, its pertinent for the macro-economic ecosystem is to graduate to the next level. The next level of growth should ideally be witnessed in commercial real estate, specifically office space consumption. An uptick in the office space consumption demonstrates enhancement of macro-economic activities, which then results in a huge multiplier effect into other real estate asset classes like residential, retail, warehousing and logistics, hospitality, education, healthcare etc.

As the Indian economy graduates again to 8-9 plus percent GDP and steps into the next level of growth phase, Kolkata this time is optimally prepared to compete with the other metros to get its due share of economic growth. The over aggressive investments made into infrastructure, efficiency and beautification over the last 6-7 years will auger well to entice investors to look at Kolkata favourably. In the next couple of years campuses of Infosys and ITC Infotech would get operational. TCS I read would hire significant numbers in the next couple of years, I guess in a new campus. These anchor activities would I am sure entice more IT/ITes companies to put up businesses in Kolkata given that the city now competes more than favourably in terms of everything, namely: manpower, cheap real estate, cleanliness, roads, traffic, nightlife, hospitality, entertainment, healthcare and education. The city is also making continuous efforts to attract other industries as well. Adding two more ports would be vital infrastructure in making the city competitive for new manufacturing and trading activities. The new Convention Centre at New Town is yet another extremely impactful asset which is playing a vital role in creating direct and in-direct multiplier effects. The new and upcoming hotels with international brand tie-ups are helping to place Kolkata in the maps of international business and leisure travellers.

So in effect, I think the tipping point has arrived for the city, at last. This time around the city is adequately poised to get its due in terms of growth and play catch-up. All of these, auger extremely well for the real estate space in the city. Residential buyers already seem to be back into the market and that is evident from the uptick in new launches of projects in the last two quarters.

In my opinion, there is never a “best time to buy” for an end consumer of residential real estate. The best time is as soon as the consumer is “ready” to buy his first real estate asset. Real Estate has always witnessed a 7-8 years kind of cyclical swings around the world and India has not been an exception. After having witnessed the best positive swing for about 7 years, from 2002-2008, and a brief U type recovery for around a year during 2010-2011, residential real estate has been on a 7 years downswing/stagnation since 2012. Fortunately, during this time few large scale structural changes, namely RERA and GST, were brought about and the impact of these has dovetailed in the down cycle.

Hence, logically with the other macro-economic indicators showing consistent positive trends since the last few quartars, it is prudent to infer that the real estate cycle too would be turning around logically. This can also be substantiated by the reversal of the interest rate cycle, both retail and wholesale, which goes on to show that there is more demand chasing money resulting in the increase in its cost. The recapitalisation of the PSUs last year and the cleansing of the banking system in terms of handling NPAs through the Insolvency Act and NCLT will soon make the banks clean up their books and be back in the market to fuel private investments. Implementation of RERA will gradually pull out a number of weak or non-serious players from active development which eventually will result in lower production of housing stock in the market for sometime in the near future. So adding up all the pointers mentioned above, I think we have reached the start of an upswing cycle in the macro-economy and hence real estate.

Though, in the meantime, I think as a market the city should have its “affordable housing” thing in place as soon as possible. Affordable Housing here means creating stock which is between Rs. 10-15 lakh, because that is the price range where the largest bulk of the purchasing power pyramid fall into. Creating habitable and efficient units at that price is a combination of land (which isn’t far off, disconnected, without existing public transport support), design and technology. While the design and technology part is for the developer fraternity to crack, ideal land remains the most critical component. Kolkata has witnessed a couple of extremely successful “affordable housing” projects already, but the price points gradually have moved in the range of Rs. 20-30 lakh, having started from sub-20 lakh, which then doesn’t remain “affordable” for bulk of the purchasing power pyramid. Hence, the design component of the input becomes critical as the apartments need to get smaller (to retain sub-20 lakhs price point) yet habitable. Technology here plays a vital role too as technology delivers the product at a large scale and at speed which is considerably higher, which keeps the overall costs low. It would be nice to see the branded and established players in Kolkata cracking the “Affordable Housing” code as soon as possible and provide the market with synergic stock. In this segment, the demand will always be more than what can be produced, in any kind of economic cycle.


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