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Despite its recent enactment from June 2018, the Housing Industry Regulatory Authority (HIRA) is yet to break ground in West Bengal. During the purported gloomy post demonetisation, introduction of the Goods and Services Tax (GST) and the Benami Transactions (Prohibition) Amendment Act, 2016 has kept homebuyers largely away from developers. Consequently, real estate, and especially new residential properties are no longer in the forefront as an investment class, as the case was once upon a time.

As developers come to terms with a changed operating environment, sans the investors, appeasing end-users through freebies galore is a key marketing strategy being employed by them. From waiver of floor rise charges to lowering the booking amount to only Rs. 21,000, they are going all out to push sales. Certain developers are also going to the extent of offering one bedroom free in a 4 BHK apartment to lure buyers. Developers are keen to bring the buyers back to the table, but they still shy away from upfront price discounts on residential products in the hope of the market cycle reviving post Housing Industry Regulation Act (HIRA) implementation. Smart homebuyers, on the other hand, expect the same discounts, delivery standards and lucrative schemes as prevalent in cities such as Mumbai or Bengaluru. The ensuing deadlock between homebuyers and developers is hurting the residential segment of Kolkata. In our view, the following measures are the need of the hour to stir up the end-user appetite in the residential segment.

Price rationalisation to succour buying decisions

To counter the adverse impact the implementation of GST had on homebuyers’ sentiments, developers had started passing on a price benefit of 7.5% on base selling prices. However, it alone does not suffice to revive sales across all residential segments. On the other hand, new launches in Kolkata have steadily climbed up by 4% in the past 6 months, while unsold inventory remains largely stagnant at nearly 39,000 units. 45% of these products are in the mid-end segment. In the current oversupplied residential segment, it is only the pedigreed developers that remain popular amongst buyers. From market assessment and our current research based on interactions with market participants, only ticket sizes between Rs. 25–85 lakhs (below Rs.  1 crore) are finding favour with buyers. Residential products priced between Rs. 1 crore to Rs. 2.5 crore are “the” worst hit owing to weak sales and are struggling to attract buyers despite several amenities. Since products priced above Rs. 2.5 crore or Rs. 3 crore cater to the luxury segment where buyer profiles and preferences behave differently than the mid-segment, these products are maintaining sales momentum through word of mouth and private references.

With the foray of many developers into affordable housing, a plethora of residential products priced between Rs.  25 lakhs to Rs.  50 lakhs have become available along emerging locations such as Joka, Behala and Diamond Harbour Road where ongoing metro construction has enhanced the locations’ attractiveness manifolds. Many Grade A developers have unveiled plans to launch products in this price bracket. While the shaping up of an organised affordable residential segment is good news for buyers, it also throws light on the growing concern of unsold stock in the Rs. 1 to 2.5 crore bracket where developers should rationalise prices and rethink pricing strategies to align themselves with end-user affordability.

Large anchor tenants in services sector dominated micro markets

Kolkata’s office leasing segment has remained subdued with the city garnering less than 0.09 mn sq m (1 mn sq.ft) average transactions annually. Despite Kolkata Metropolitan region being India’s third most populous metropolitan area after Delhi and Mumbai, the occupier interest in Kolkata has not witnessed any spike or revival in recent years. Kolkata Metropolitan Region’s population is 14.7 million, which is nearly 69% more than Hyderabad Metropolitan area. Despite a huge population pool, the office market in the city lags far behind Hyderabad where average absorption trends between 2014 to 2017 indicate 0.48 mn sq m (5.19 mn sq.ft) leasing volume annually. Even for Pune Metropolitan region, with half the population of Kolkata, the average annual leasing recorded during this period is 0.43 mn sq.m (4.57 mn sq.ft).

With the creation of New Town as a new satellite city, Kolkata created the right buzz to attract many IT majors and reduce the pressure on the existing central business district. The planned township of New Town propelled commercial and residential construction by real estate bigwigs and emerged as a new IT hub for the city’s dying services sector. Despite the entry of many IT companies, the lack of a single large IT tenant stalled the pace of entry of new tenants. Though many educational institutions were subsequently established and upcoming social infrastructure in the form of many hotels, hospitals, open spaces and shopping malls were created, incremental job growth remained abysmal. A global IT leader has acquired a 50 acres land parcel and earmarked it for creation of a development centre which is expected to generate more than 3,000 new jobs. The entry of this IT giant is expected to act as a catalyst for foray of many other technology and consulting companies to breathe life into Kolkata’s commercial real estate segment. With cheaper rentals compared to Mumbai, NCR or Bengaluru, entry of new tenants on the back of this IT giant tenant should revive tenant outlook for Kolkata’s commercial segment.

Removing hurdles for the Metro project

Kolkata Metro is a key infrastructure project that has boosted demand for residential real estate along its corridors giving a fillip to locations such as EM Bypass, New Town, Rajarhat, Joka, Diamond Harbour Road and BT Road. However, the ongoing metro construction is facing many impediments due to encroachment and non-availability of land on several stretches. Several delays are caused in ongoing works for extension on routes such as Dakshineswar and Barrackpore along BT Road, Joka-BBD Bagh link, etc. The state government should prioritise removing land hurdles to ensure timely completion of all planned routes. Once the Kolkata Metro becomes operational, it will provide a push in the right direction to several peripheral micro-markets, which could emerge as the new housing destinations in Kolkata. With several developers already present near metro stations and many more breaking grounds, this infrastructure push will bode well for the pent up residential demand to translate into sales.

Speedy implementation of reforms

As a state, West Bengal has been a pioneer in formulating several policies focused on urban development. As part of the highlights of the West Bengal State Budget 2018–19 unveiled in January 2018, the following announcements were made.

a)   The WB Single Window System (Management, Control and Misc. Provision) Act, 2017 was enacted to promote Ease of Doing Business and the Single Window Portal “Silpa Sathi’ for G2B services was launched.

b)   A grant of Rs.  123 crores was announced to develop and modernise the industrial parks and growth centres to attract entrepreneurs.

c)    The process of setting up a deep sea port at Tajpur (170 km from Kolkata) was initiated.

d)   The IT Department has laid thrust in providing an enabling environment for IT companies and generating more employment for IT companies. Total exports from IT for the state have crossed Rs. 15,000 crores in 2016–17 from Rs.  8,335 crores in 2010–11.

e)   A large IT giant has renewed its initiative to establish a campus in New Town, Rajarhat.

f)   Amendments in the West Bengal Land Reforms Act, 1955 have been notified during FY 2017–18 and changes in the WBLR Act of 1965 has been made to unlock the land lying unutilised in closed mills/factories/workshops for investments and business opportunities.

g)  Tax relief for the housing construction sector and lower and middle class, as stamp duty has been reduced by 1% in rural areas and urban areas on all properties of value upto Rs.  1 crore. As a result, the stamp duty on all properties of the value between Rs.  40 lakhs to Rs.  1 crore in rural areas will come down from 6% to 5% and in urban areas from 7% to 6%.

These are all welcome steps for encouraging development in the real estate sector and bringing the investors interest back. While the intent of the state government remains focused on the development, job creation and ease of operation for businesses, speedy implementation remains the key to make a meaningful impact.

In the current environment, residential sales are primarily driven by completed properties and availability of a completion certificate is what is bringing confidence to buyers who view such projects as “safe and affordable’’, as they do not attract GST. For the residential segment to revive, a push in all the above directions is required by the developers, government agencies and the state government to bring the buyers confidence back and make the entire bouquet of residential projects attractive again.

— The author is Assistant Vice President, Research, Knight Frank (India) Pvt. Ltd.

[The views expressed by the author in this article are their own.]