Pune, Chennai, Hyderabad and Kolkata will start attracting sizeable investments in the realty space along with the top three metros of Mumbai, NCR and Bangalore,
says Chairman and Country Head, at JLL India Mr Anuj Puri. This
will be a notable change from dynamics seen in the past, wherein only these three
cities ruled the roost. In fact, realty market will see Grade A commercial properties
in tier 2 and tier 3 cities appear on the radar of investors, according to Puri.
Shri Puri is having over 20 years of experience in multi-disciplinary advisory and
transactions ranging from real estate to social development projects. Expertise
in planning, undertaking demand assessment studies and transaction services including
marketing strategies based on technical real estate market analysis, feasibility
studies, program requirement derivation and fund and investor sourcing.
He is responsible for the overall direction, strategy and growth of the largest
premier real estate services company in India – JLL. He oversees a team of
over 4800 employees across 11 cities in India with an annual business turnover in
excess of INR 800 crores.
Shri Puri spoke candidly to Sandeep Pattnaik of Gharabari.com, sharing his views
in the context of Indian Realty Space. Excerpts…
Q.1. JLL has been ranked as top real estate investment advisor in Asia Pacific
last year. What has been your USP over the years?
A. In one word, ethics. JLL is a strict adherent to a global
code of ethical business and transparency, and this sets us apart from the rest.
An ethical real estate company ensures that all business information is honestly
and accurately recorded and reported in compliance with applicable laws. It also
has strict rules against bribes, kickbacks and bartering arrangements, or any other
incentives offered to obtain or retain business. In addition, it scrupulously avoids
all improprieties or conflicts of interests, and has a strong policy against insider
Ethical business practice also means that a real estate company does not separate
the purchaser and the buyer to create additional business advantages. Likewise,
it will not attempt to pressure a client into making a decision, or provide any
kind of misleading information to prompt a desired decision.
At JLL, we believe that a real estate company does not only have a responsibility
to its clients – it is also accountable for the state of the market it operates in. We believe that unethical business practices contaminate and weaken the market, and in the long run harm business for everyone.
Q. 2. Despite home sales fell around 8% (as per a report) across six top
cities of the Country in the Qtr to December, resulting into spike
in unsold inventory, average price rose 7%. How do you visualize it?
A. There are various reports on unsold inventory floating
around, and the findings vary depending on the authoring firm’s depth of market
research. On the whole, I would say that there is definitely a supply overhang in
many pockets of our cities, even as other pockets in the same cities are seeing
a dearth of supply.
Generally speaking, 2015 will see developers becoming more attuned to the current
supply-demand dynamics and also earnest about right-sizing and right-pricing their
offerings. Smaller, yet better-designed and more efficient homes will define the
residential real estate market in 2015, and selective corrections in some of the
over-priced cities will help bring about faster sales for stagnated supply of larger
configurations. Townships will become more prevalent, and the supply of luxury homes
will moderate to align with the slow demand dynamics for these offerings.
Q. 3. What’s your view about India as an Investment destination
among the Asia-Pacific Nations into the realty space across segments? Your view
is suggested for both Residential and Commercial Space.
A. 2014 saw gradual growth in demand for Indian real estate, particularly
after the general elections in May. Concurrently, fund raising activities picked
up, and this momentum will continue in 2015 as well. We will see less of one-way
investments and more of partnerships between investors and developers and other
Joint venture and club funding will become the preferred mode as 2015 progresses.
With the improvement of the economic situation, Pune, Chennai, Hyderabad and Kolkata
will start attracting sizeable investments along with the top three metros of Mumbai,
NCR and Bangalore. This will be a notable change from dynamics seen in the past,
wherein only these three cities ruled the roost. In fact, we will see Grade A commercial
properties in tier 2 and tier 3 cities appear on the radar of investors, though
a full-on focus on these opportunities will probably not take place in 2015.
Attractively-placed office assets and high-demand residential categories, especially
well-located mid-income projects, will continue seeing considerable investments
in 2015.While investors may continue to show limited interest in retail real estate,
we will see increased interest in the hospitality sector as compared to previous
REITs got a green signal from the government in 2014, and this will help ease the
pressure on the balance sheets of cash-starved developers. However, the listing
of new REITs will be slow and steady. While REITs will succeed over the longer term,
they need to pass through the challenging phase ahead for them over the next two
Q. 4. Over-leveraging has almost made the Indian Realty Cos defunct. They
are selling their assets to reduce debt. Adding to their woes, accessibility to
funding has been cumbersome, given the prevailing high interest rate in housing
sector and Cos find it difficult to raise money from Capital Markets. Then what
are your suggestions to the Indian realtors as well as the Union Govt.?
A. A lot of Indian real estate developers are struggling,
and pestment of non-performing assets is a natural and rational way to address the
situation. While debt funding to real estate is indeed expensive in the current
environment, the environment has been looking a lot more positive. REITs is almost
reality now, and we expect the first listings to come up in the foreseeable future.
Also, developers do have access to other funding sources. For instance, at Jones
Lang LaSalle Capital Markets, the bulk of our business is currently happening via
debt syndication through domestic funds. These funds are secured, easy to handle
and enable quicker execution from a developer perspective. Capital markets services
are provided to developers based on their overall track record as well as the viability
and marketability of their projects. In order to be eligible for such funding in
today’s market climate, a developer must be able to demonstrate a sufficient
degree of financial discipline and accountability. For example, there needs to be
verifiable proof to the effect that there has been no cross-usage of funds allocated
to projects, and that every project represents a flawless case of financial closure.
Q. 5. Don’t you think, the above case will lead to potential threat
of takeover of the Indian realtors by their foreign counterparts?
A. In India, international property consultancies
[IPCs] are in fact part of their larger global firms. For IPCs with sufficient market
penetration and capitalization, the current environment is very suitable for expansion.
Q. 6. The land ordinance of Dec 30, 2014, has effectively exempted private
entities from securing prior consent of at least 80% of the affected families besides,
done away with social impact assessment for acquisition of land by the private sector.
How it is going to affect the realty sector in India? Please give your view.
A. The latest ordinance has brought about changes
in the original land acquisition Bill. The ordinance has relaxed the land acquisition
and the R&R provisions for five sectors. These are defence and defence production,
rural infrastructure, affordable housing, industrial corridors and the townships
that are part of them and finally infrastructure PPP projects where land ownership
remains with the government.
What one also needs to remember is that in the original LARR Act, inpidual state
governments have been given a degree of freedom to decide on the resettlement and
rehabilitation and compensation provisions when acquisition is to be done by the
The relaxation for the five sectors enumerated above includes:
• No Social Impact Assessment needed
• Clause of consent of 80% or 70% (in case of PP and social infrastructure
projects) of affected families for land acquisition has been
• The livelihood provision under R&R has also been removed
• Multi-crop land can also be acquired for these five sectors
However, 13 central acts such as the National Highways Act, etc have been brought
under the purview of the LARR Bill in terms of the compensation to be paid.
At a ground level the ordinance seeks to relax the norms slightly for five sectors
only and does not really concern the private sector acquisition. Except affordable
housing, where the removal of the SIA, consent clause and livelihood provision will
reduce the acquisition time appreciably while also keeping land acquisition costs
slightly lower, which are needed for the success of this sector. The other provisions
will reduce the time lag and issues pertaining to land acquisition for infra projects
which were acting as bottlenecks to investment flow which is much needed for the
development of country’s infra and the progress for creating smart cities.
Issues pertaining to paying the higher compensation based on the formula devised
in the Act remain a concern as costs have gone up and are likely to affect most
projects going forward. Now with the inclusion of the National Highways Act under
this Act, costs for building highways will also go up.
The higher compensation issues based on the formula in the original Bill has remained
unchanged. However, different states can decide on them by themselves. The ordinance
change is likely to benefit the manufacturing sector while also giving a push to
the affordable housing and rural infra projects. With the R&R and compensation
provisions have not been changed, the time consumed by the SIA and consent clause
also added more time and hassles to project initiation and implementation while
adding to the project costs. This is what is sought to be removed by way of the
Large infra as well as manufacturing projects require substantial land and the original
provisions were adding a larger time factor to land acquisition process, which when
added to the enhanced compensation provisions and the time thence taken for the
other project level approvals was not only delaying projects ‘go-live’
dates but also adding to the overall costs. This was acting as a barrier towards
attracting private (domestic and foreign) corporation participation on large-scale
The ordinance will also give a fillip to creation of industry-based smart cities,
as being envisaged under the Delhi Mumbai industrial corridors as well as other
similar projects in the country. Private sector participation is also likely to
increase if the time slack is removed by the relaxation provided by means of the
Land pricing has already gone up as per the original Act. It is likely to remain
high as the compensation benefits have not been relaxed. There are a host of private
players who have been stymied by the land acquisition process and the higher compensation
concerns which have impacted their future growth plans. Now for the affordable housing
and the infrastructure sectors as well as the township projects as part of industrial
corridors, private participation should improve with the delays and problems associated
with the original land acquisition process having been relaxed to a great extent.
Q. 7. REIT is still in a nascent stage. What needs to be done to make this instrument
really beneficial for commercial real estate space? What are JLL India’s recommendations
to the Govt. on the context ?
A. Until vital changes to overcome the tax hurdles,
REITs – which can literally be a life-saver for Indian real estate
– cannot take off in earnest. The real estate sector is expecting the upcoming
Union Budget to make announcements that can iron out this wrinkle and thereby help
fast-track REITs in India.