(Business Standard, Jan 19, 2011)
Integrated township projects offer developers an opportunity to cash in on the revival in demand for residential & commercial space
Ajay Arora, a multinational software company employee, commutes 2 hours daily to work in rush-hour traffic. He spends as much time — sometimes more — on the journey home. Driving is his passion, but given the gridlock going into Bangalore almost the time, he recently hired a driver. Still, he is frustrated by the amount of time he spends on road.
Then, his firm took office space in an integrated township in Bangalore. “It was a dream come true,” he says. “This township includes my office and I am taking a flat that is hardly 10 minutes away on foot. It has a shopping mall, multiplex, hospital, school and most of the necessary amenities within walking distance,” says Arora.
Realty players across India are hoping there are many more people like Arora and are betting on the specialised real estate model of integrated townships as their next growth vertical. “Residential conditions in our major cities are on an accelerated decline. There is a general shortage of infrastructure, increased air, water and noise pollution, and a rash of illegal and unorganised structures cropping up everywhere. Increasingly, home-owners face problems reaching emergency services, finding adequate parking and traversing pothole-riddled roads,” says Sanjay Dutt, CEO – business at realty consultancy firm Jones Lang LaSalle.
“Given this depressing scenario, it has now been established that townships are the most suitable residential solution. The government is now encouraging the development of such townships to reduce pressure on urban areas and to improve infrastructure. Also, townships attract foreign direct investment and make overall economic sense,” says Dutt. Apart from FDI, integrated townships can also access extended commercial borrowings.
Integrated township projects also offer real estate developers an opportunity to cash in on the revival in demand for residential and commercial space. These projects are also part of an effort by these companies to reduce risk in their business model, as one vertical provides a cushion to another in case of tepid demand. As many as 24 expansive townships are being set up across India and are due for completion in the next couple of years.
“Integrated township projects are slowly gathering steam as the concept of walking to work is picking up among city dwellers. As a township project integrates residential, commercial and retail properties, this is the next phase of growth in the real estate industry,” says Venkat K Narayana, chief financial officer at Prestige Estates Projects. However, he pointed out that developers with considerable experience in the commercial and retail verticals would have an edge.
Prestige Estates recently launched Shanti Niketan in the Whitefield area of Bangalore. “While most of our residential space has been snapped up, bookings have just begun for our commercial space. We are also planning to come up with another integrated project in the next six to eight months,” says Narayana, adding that the operating margin for an integrated project was comparable with a purely residential one.
Others like Sobha Developers and Brigade Enterprises have also come up with similar projects. Top officials at Sobha said the company has an integrated housing project at Thrissur in Kerala, and the company is bullish about this emerging trend. Brigade Enterprises recently launched Brigade Gateway, which comprises residential, commercial and retail space.
Even city-based developers are planning projects of this kind in the near future. “We are planning to come up with an integrated township project in 2011 in Bangalore. This space holds great promise,” says Bharat Dhuppar, chief marketing officer at Mantri Developers. He said given the slow development of infrastructure projects and traffic congestion in cities, integrated township projects would be the next growth spot for the industry. “The concept will not only be popular in the metros, but also Tier-II & -III cities,” he adds.
An analyst with a real estate consultancy firm said the trend of launching integrated projects would continue in 2011 due to an upside in demand for both commercial and residential space. He also said large real estate players would like at least 10 per cent of the total portfolio in integrated space.
Anil Pharande, Chairman, Pharande Spaces, a Pune-based realty player that specialises in integrated residential projects, says, “Integrated residential projects counter the trend of people living in smaller, isolated pockets within larger cities, thereby reintroducing the possibility of community-based neighbourhoods. Residential properties in smaller, stand-alone projects do not have the same capacity to maintain and increase property investment value as integrated residential projects.”
What’s more, such townships also offer the prospect of higher appreciation, as these projects adhere to a pre-set development plan with regard to open spaces, communal amenities and common areas. This means the overall value of the location does not take a hit because of unrestricted developments that may crop up later.
“Since such integrated projects have their own infrastructure, they do not depend heavily on what the local municipal corporation delivers (or doesn’t deliver) in terms of sewage management, water supply and overall maintenance of the immediate surroundings. The maintenance of integrated residential projects is centralised. Also, since such residential projects have various levels of security to protect the entire project, homeowners are assured of much higher levels of safety for themselves, their families and possessions,” explains Anil Pharande.
One more critical factor is that as townships are centrally conceived and executed, there are no variations in construction standards. In unplanned localities that are so much a part of the property markets of India’s main cities, many developers with different construction ideologies and standards have projects standing cheek by jowl.
“The substandard construction of one project not only pulls down its own market value, but also that of those next to it. Two or three poorly designed and constructed buildings can cause the entire location’s market profile to collapse,” says Anil Pharande.