Smart cities to create new realty markets
Expected to lead to demand for technology-enabled services, something that’s a big positive for IT/ITeS firms
The Budget is all about smart cities, FDI and SEZs. It allocates ₹ 7,060 crore f or 100 smart cities. Building 100 smart cities is the vision of prime minister Narendra Modi and is a strong measure that will tackle India’s growing urbanisation problem and reduce pressure on existing cities. The construction of such cities will mobilise employment, develop infrastructure and create new real estate markets.
“Allocation of funds is a step in the right direction. However, in order to ascertain specific impact, we have to await the specific information on the locations, master plans and the development of supporting infrastructure facilities,” says Sanjay Dutt, executive managing director, South Asia, Cushman and Wakefield.
This will have very positive implications for real estate across all segments, namely residential commercial, retail and hospitality. Smart cities, by definition, imply considerable demand for technology-enabled services, and this is a big positive for IT/ITeS companies in India. Significantly, as much as one- third of the country’s demand for office space emanates from this sector, says Anuj Puri, chairman and country head, JLL India.
However, for the smoother execution of the target, existing land Act should be amended to make the acquisition easy and simpler, says Sachin Sandhir, MD, RICS, South Asia.
Foreign investors all this while have been cautious about investing in India’s real estate sector due to which developers in the country have to depend largely on domestic capital for a substantial part of the funding, which often covers the cost of land acquired, expenses during the approval of the project and the construction of units. Keeping the larger vision of creating smart cities and housing for all, the government has proposed the reduction in built-up area from 50,000 square metre to 20,000 sq m and minimum capitalisation from 10 million to 5 million. This is definitely a positive step for the housing sector. The reduction in built-up area and size of projects will allow mid- sized and smaller developers with good track records better access to foreign direct investment and boost affordable housing in the country. At present, group-housing projects (apartments) are eligible for FDI if the total built-up area is at least 50,000 sq m.
This would enable FDI players to take up projects in both Tier 1 (where land was scarce for projects requiring 50,000 sq m built-up area) and Tier 2 and 3 cities where such projects were commercially not attractive due to erstwhile size and capital requirements. FDI interest should also pick up with tax clarity on REITs which should enable introduction of REITs in later half of the year.
The finance minister’s commitment to revive interest in Special Economic Zones (SEZs) is a welcome announcement. SEZs as a concept are geared towards making India a manufacturing hub and generating job opportunities. At the moment no clarity has been provided on the exact steps the government will be taking to remove the operational and other bottlenecks.
“Whilst we await more clarity on the issue of SEZs, our understanding is that there will be no impact on SEZ land parcels that have either been returned or the land-use changed to residential. We expect the government to mainly focus on SEZs that are currently struggling or are in the pipelines”, says Sanjay Dutt of Cushman and Wakefield.