Business World - November, 2006

The customer’s desire to upgrade clubbed with the developer’s determination to be more professional are making a critical difference to corporate real estate in the country. The positive outcome of these initiatives are sweeping across the country and percolating down to the smallest urban centres, says Kumar Gera, Chairman, Confederation of Real Estate Developers’ Association of India (CREDAI) and Managing Director, Gera Developments

India’s real estate story is usually presented as gleaming and shining. What aspects of corporate real estate are Indian developers truly proud of ?

There has been a significant shift in the real estate industry. One of the foremost is the greater level of transparency that has come in real estate. Where unaccounted money in the business was a given before, it has been reduced to a large extent. In the case of many developers, it has come down to zero. With FDI coming in, a lot of changes are taking place in how Indian developers function. Having experienced such as process ourselves (we’ve recently got into a tie-up with Citigroup), I can tell you that the amount of due diligence the entire company has to go through puts a huge check on all aspects of the business. Foreign investors are looking to partner with companies that are transparent and have a system of corporate governance in place. This is driving real estate developers towards better practices and this is a good sign. The companies that do not make the mark are looking to raise the bar so that they do not get left behind.

Other offerings like warranties of real estate are also evolving. This means that in the absence of laws and rules that cover these issues, developers are taking the initiatives to put in systems that give the buyer a sense of security about their purchase.

Would you say that the corporate real estate available in India today caters to all types of clients like large businesses and small and medium sized businesses? It’s mostly the Grade A space that’s in the news, so is that what’s predominant?

On the contrary, if you look at the total requirement of Grade A office space, it’s so large that the existing supply is inadequate. We in India have never produced Grade A space till recently, so there’s no old stock. If you take out space being put up for the IT and related development, there is very little other type of development.

Another aspect is that India is a large country with more than 400 urban centers with varying needs for corporate space. While a lot of development is happening to cater to the IT and ITeS segment, outside the realm of this segment, needs are not being met. We have a long way to go in being able to provide adequate supply of the right kind of space.

Is the quality of corporate real estate in India comparable to global standards? Where are the areas where improvements are needed ?

I would give you a yes and no answer. Few developers are moving towards international standards, but then what do we mean by international standards. Do we mean top of the line, or do we mean something that fulfills some minimum requirements. Even when we speak of office space in developed nations, there is a wide range of properties from virtually rubbish quality to what you would call magnificent. What benchmarks we choose for corporate real estate in India is something we need to decide upon.

IT Parks and now SEZs seem to be the new formats for development of corporate real estate. Are initiatives like the SEZ Act really beneficial to the consumer of corporate space?

I think it’s still too early to answer your question on the SEZs. Right now it looks as though there is a tremendous real estate thrust that SEZs will have, but those involved are still in the process of getting clearances. They will need to evolve and develop in reality for us to really see the impact on real estate.

With demand being far more than supply, office space is getting really expensive for businesses. Plus the courts are squeezing the possibility of running offices in residential areas. When and how will this situation be resolved ?

I think that’s a Delhi situation more than anywhere else. In metro cities, there are downtown areas and residential areas which are spread out. People move into the central commercial areas during the day and this becomes a ghost town at night. You can see this model of urban design that the planners have put in place in Delhi, Mumbai, Washington and many other cities.

Medium and small sized cities in India have deliberately pursued a mixed use form of development. Roads are classified as R1, R2, R3 etc and certain type of activities are permitted for each category. This means commercial areas are interspersed with residential areas in a planned manner. Take Pune, for example. My home is in a residential area, but it’s hardly half a kilometer from the road where all the office buildings are.

Coming back to the price issue, your concern is that real estate is outpriced in the business front. I would say that the commercial rentals are reasonable as of now. The range is from the highest band of about Rs 150 -175 per square foot in metros, to as low as Rs 20 per square foot in the Tier II and Tier III cities. This price band is competitive. But we do have to be careful because manpower and lower real estate costs attract business like BPOs and if property is outpriced, India will lose its competitive advantage.

You head a real estate development organization. Are developers beginning to see better returns in developing and managing corporate space as compared to residential space ?

Every developers looks at the bottomline and evaluate what kind of real estate commercial or residential – they wish to get into. But they are different products and there are developers that have gathered expertise in commercial real estate and perhaps 80% of their projects will be commercial. On the other hand, at Gera Developments, for instance, 90% of our projects are residential and only 10% are commercial.

Then again, developers look at different models-lease, develop and sell, etc. But if you look at the management aspect of real estate, commercial real estate, both offices and malls, makes much better sense.

Which urban centers do you see emerging as the hubs for corporate real estate in the country?

There are so many cities across the country that are emerging centers for corporate real estate. Other than Mumbai, Chennai, Delhi, Bangalore and Pune, I can count cities like Nagpur, Coimbatore, Mysore, Cochin , Bhubaneshwar, Lucknow, and many more that are attractive to corporate real estate. While the economy is doing well, everyone is a potential real estate buyer. Not only that, everyone is always looking for an upgrade. This kind of affluence and attitude is percolating across the country, down to the Tier II and III cities.

What role does CREDAI play in the real estate scenario in the country? Are there any initiatives in CREDAI that benefit the corporate realty sector specifically?

CREDAI is an inward – looking organization that looks at the real estate industry as a whole and helps its members improve their performance and products. CREDAI promotes corporate governance, enforces a code of conduct, provides access to training, and interacts with the government to encourage intelligent and sensible policies.