Economy Sep 18, 2012
For beleaguered realtors, every reform smells good. Just as the value of Navi Mumbai land shot up once the new airport project got its clearance, builders are looking to tie up with foreign retailers days after the government approved FDI in multi-brand retail.
Former Civil Aviation Minister Praful Patel's assurance in 2010 that environment clearance for the Navi Mumbai airport project would be in place by November that year was music to the ears of real estate developers as land prices skyrocketed in the 18 villages to be affected by the airport project. Land, which sold at Rs 20,000-40,000 a acre about five years ago, began selling at Rs 40 lakh-Rs 1.50 crore per acre, depending on the location.
Similarly UPA's plan to allow in foreign supermarkets such as Wal-Mart and Carrefour could eventually create huge anchor tenants for shopping centres and realtors have suddenly come back with big retail plans.
"International retail chains like Wal-Mart, Carrefour, Metro, Spar and a few others are in touch with us for a tieup and taking up space in our mixed use projects and the mall e-square," RK Arora, chairman and managing director (CMD), Supertech, a national capital region (NCR)-based real estate developer, told Business Standard.
Till recently, FDI in retail (except under single-brand product retailing, with conditions) was not allowed in India. The government has now opened a gateway for foreign investment in the sector. And the move has clearly perked up some of India's biggest real estate firms such as Unitech, DLF, Oberoi Realty, and Sobha Developers, among others, who are back to drawing up big retail plans.
According to a report in the Economic Times, India's largest real estate developer DLF is already planning to kickstart the largest mall in India, with four million sq ft of space in Gurgaon and is hoping that by the time the mall opens in 2015-16, quite a few new retailers and brands would have entered the country by then with the easing of FDI in single and multi-brand retail. It is also planning a a 1.8 million sq ft mall at Noida, which will be operational by the third quarter of 2013-2014, and is in touch with all leading foreign players planning to enter India.
Says Pankaj Renjhen, Managing Director - Retail Services, Jones Lang LaSalle India: "The new international entrants will be willing to take longer term bets and invest in stores which will be sustainable over the long haul. Competition will increase as Indian retailers shape up and intensify their expansion plans - which had been fairly low over the past few years.
Incidentaly,Anuj Puri, chairman and country head of Jones Lang LaSalle India, said last week, "The Indian retail sector is in a dynamic state of reinvention, with the initial hit-and-miss approach based on perceived absolutes rapidly giving way to superior malls, more business-conducive locations and better business models," adding that unfortunately the sector is still hamstrung by restrictive foreign investment policies, which are reining in the country's potential for attaining faster growth.
Retail real estate has been down and out for the last three years and demand in terms of net absorption of retail space fell 57 percent from the levels seen in the year-ago period. As per data by Crisil, retail rents are down 30-40 percent from peaks in 2008.
In fast-growing cities like Ahmedabad, Pune and the New Delhi region, vacancy rates at malls are more than 25 percent, according to property consultants Cushman & Wakefield, putting pressure on rents.
"Because of the limited availability of new malls and the low vacancy rates in the existing prime malls, retailers in cities such as Hyderabad, Chennai and Bangalore continue to actively lease space on high streets. A policy change could be a significant boost for absorption, and therefore supply," said Subhash Bhola, Senior Manager at Jones Lang LaSalle India.
The opening up of both single and multi-brand retail for foreign players should allow for a whole new tenant mix in malls as large global retailers start firming up their plans for India.
Property consultant Knight Frank's Regional Director (North) Mudassir Zaidi said: "This step will help in revitalising the retail sector as many global brands are wanting to come to India. Because of new players coming in, we will see lots of new demand coming to the real estate sector for retail spaces. Eventually, property prices may also firm up in future."
However, while the announcement is a step in the positive direction, it remains to be seen how the various state governments react to it and how many states agree to open their markets to retail FDI. In its current form, only 9 states have expressed their willingness to allow FDI in retail and 15 states have opposed it. States which have supported the Centre's decision include Maharashtra, Delhi, Jammu and Kashmir, Haryana, Rajasthan, Uttarakhand, Andhra Pradesh and Assam--all ruled by UPA.
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