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India's emerging growth centres
Knight Frank India Research Team | April 10, 2007
Starting this month, we will bring to you incisive reports on the state of real estate in India compiled by Knight Frank (India). Through these reports to be published every fortnight, the global real estate company will delve into the growth dynamics of several locations in India that are experiencing a paradigm shift in their economic and real estate scenarios and will also comment on various interesting aspects of real estate sector.
Consistent and sustaining GDP growth, expanding service sector, rising purchasing power and affluence, proactive and changing government policies have all lent momentum to this rapidly growing sector.
Accounting for almost 80 per cent of the total office space absorption, the Indian IT/ITES sector has been the primary demand driver. India's low cost-high quality and productivity model has given it a leadership position in the outsourcing arena.
In a bid to scale up their operations and to remain globally competitive, the Indian IT/ITES companies are exploring the smaller towns and cities. Rising manpower and real estate costs, plaguing attrition levels and very often risk mitigation have been the key reasons for this movement.
This has been further fueled by the increase in the size of 25-55 age group of earning population and the emergence of double income, nuclear families.
As per the Census of India 2001, 41 per cent of the total population of India will be living in urban areas by 2011. The number of cities with a population of one million or more is also is expected to double from 35 recorded in 2001 to 70 by 2005. This increase in population will generate incremental demand for housing and other real estate components.
India's investment scenario is already undergoing a sea change and has been seen to be making roads in rural India with telecom, rural retailing, agricultural supply chain and logistics facilities, micro-credit, etc. All these factors foretell that the real estate growth will soon spread out of the established boundaries.
However, to support this growth and to make it more expansive, a lot needs to be done. Foremost is thethrust on infrastructure.
According to a World Bank estimate, India needs to invest an additional 3-4 per cent of its GDP on infrastructure to sustain its current levels of growth and to spread the benefits of growth more widely. Some positive steps have already been taken in this direction.
Connectivity may get a boost with the completion of 13,000 kms of roads under the Golden Quadrilateral, North-South-East-West corridor and with 4-laning of all the major national highways. This will further facilitate the economic development of smaller towns and cities in the country.
Major real estate destinations of the country and some other emerging towns can be classified into three broad categories depending upon the stage of real estate development that each one of them is undergoing.
As the Indian real estate sector moves higher on the growth curve, a number of state capitals and smaller cities which have relatively better infrastructure and are able to support higher economic growth have come into limelight.
These emerging growth centres are characterised by low real estate costs, availability of land for development, untapped manpower pool and rising quality of life. Many of these towns have industrial and tourism driven economic base that can be leveraged for growth.
The study and analysis of the emerging growth centres of India has brought in to light several interesting facts. For arriving at the most attractive destination from among the 15 cities presented in this report, an analysis of five key parameters was undertaken.
Real estate -- In today's scenario, real estate is a major determinant of the general attractiveness of a city. Sub-parameters like real estate cost, availability and outlook were the variables considered here. These variables are decisive factors behind a corporate as well as an investor's plan to enter a city. Cost advantages have been seen to tilt the scales in favour of a Tier II or Tier III city, away from the established Tier I cities of the country.
People -- People form the foundation of a city's strengths. Market potential of a city depend upon several people factors like decadal growth, purchasing power of the population as well as the literacy rate. These sub-parameters depict whether a city has the requisite catchment for retail success, as a city with high decadal growth and purchasing power would also denote a strong consumer base.
Further, other sub-parameters like the telecom and power supply situation of a city provide the basic amenities to an IT/ITES establishment. These factors act as cost variants and affect the general attractiveness of a city.
Social infrastructure -- The social infrastructure of a city is also acknowledged as one of the key decisive factors in a city selection exercise. Many corporates are driven by cost constraints and prefer to locate to cities with lower cost of living.
These factors also determine the efficiency of conducting business in a particular city. Our study reveals that currently Chandigarh leads the way on the real estate front, owing to its ready availability of quality residential and office space with good prospects for future development. Kochi, witnessing hectic real estate development and being actively promoted as an IT/ITES destination by the state government, follows Chandigarh. Cities of Bhubaneswar, Ahmedabad, Nagpur and Mysore are next and rank equally on this parameter.
This implies that all these four cities are evolving real state destinations and poised to take a quantum leap ahead. Guwahati and Surat score low on the real estate parameter as real estate development in both the cities is still in the infancy stage.