This week the Apeejay group, which owns The Park Hotels, bagged a prime 3.35-acre property along Kolkatas eastern metropolitan bypass for Rs 135.77 crore. The group, which already has a hotel on Park Street in downtown Kolkata, will build a 300-room luxury hotel on the plot. For company, it already has the ITC Sonar Bangla luxury hotel on one side and the proposed DLF-Hilton Hotel on the other. Then, Webel, the government agency to develop IT and electronics services, formed a joint venture with private property player Akash Nirman Ltd to set up a 1,200-acre IT township near Rajarhat on the north-western fringes of the city. The government will parcel out part of the land to Infosys (90 acres) and Wipro (50 acres). The IT majors, which already have a large presence here, had been waiting for fresh land allotments for quite sometime.
Most of the citys hoardings announce a new township or a hotel or a mall every week. The pace has been dramatic. While office space, home realty, retail and hospitality are growing rapidly, real estate activity is high in the citys northern, southern and western peripheries. Says Abhijit Das, MD, Kolkata, Jones Lang LaSalle Meghraj, India, The office space market is currently witnessing a huge upswing in terms of demand, supply and price appreciation. The residential sector, adds Das, is doing equally well and is witnessing steady growth in consumption and pricing. As for retail, there are eight malls in the city with 12 more slated to come up by 2010.
So, whats driving the real estate sector in a state run by Marxists
A pro-infrastructure chief minister, admit all the major players. The state government is very aggressive on infrastructure, says Rahul Todi, MD, Shrachi Group. Theres been a sea change in the last 7-8 years and investments have poured in over the last two years, he adds. Its because of the current hard-sell by the chief minister that West Bengal has attracted one of the largest chunk of investments in 2007, which include the trophy investment by Tata Motors (for the Nano at Singur) and the numerous investments into steel (Jindal Steel Works), alumina and captive power (Vedanta), petroleum and petrochemicals (Haldia, Indian Oil) and so forth, points out Das.
The IT, non-IT advantage
In fact, one of the big advantages that West Bengal has is that both IT and non-IT sectors, including telecom and hospitality, are propping real estate up in the time of a slowdown. There is currently around 40-50 million sq ft of IT/ITes space. Growth will continue as the action on the services sector has shifted from Tier 1 to Tier 2 and Tier 3 cities, points out Avrajit Kar, VP, marketing and business development, South City Projects.
The IT sector works on a ratio of 1:10100 sq ft of IT space creates requirement for 1,000 sq ft of residential space, says Sushil Mohta, MD, Merlin Projects. The requirement for IT space will continue its upsurge and we will not be seeing any overheating except for some pockets. Services sectors like hospitality and healthcare will drive growth for real estate, he adds. As a result, Todi says office space will witness an aggressive growth in the next two-three years because there was less supply in the last few years. For Mohta, housing for lower middle-income group and lower-income group will be the next growth area.
According to Jones Lang LaSalle, IT is the largest consumer of real estate in Kolkata currently. The IT space consumption in 2007 was around 2.5 million sq ft excluding land allotments made to IT companies for captive consumption. It is projected that in 2008 consumption of IT space will be around 4 million sq ft. Kolkata has more than 20 million sqft (cumulative) of IT/ITes office space which will be completed and ready for consumption by 2010.
Not surprisingly, many of the major national players, including DLF, Shapoorji Pallonji, Emaar MGF, Godrej Properties, Tata Housing and Sriram Properties, and international players like Keppelland and Salim Group, have a presence in Kolkata. This is the only metro where all the major players have a presence, says Harsh Neotia, chairman, Ambuja Realty Development. Besides, there are strong local players like Bengal Ambuja, Bengal Peerless, Bengal Greenfields, Bengal Park Chambers, Bengal Shrachi, Bengal United Credit Belani, South City Projects and so forth.
With office space, home and retail driving real estate, most of the players are doing a mix of all three. A senior executive at Bengal Unitech Universal says office space drives residential and the retail industry drives the commercial space.
Says Kar, People are rapidly moving from the concept of stand-alone apartments to integrated townships. Clubs, schools, retail, entertainment are all becoming a part of a single package provided by realtors.
An Emaar MGF spokesperson says the company has lined up mega plans for strengthening the hospitality infrastructure as Kolkata emerges as a major hub for industry, trade, commerce and investment. To cater to niche target groups, the company has entered into strategic partnerships with international hospitality companies, the Marriott Group and Intercontinental Hotels.
But, whats in store for Kolkata, now that the real estate sector is being impacted by a slowdown in the economy The prices wont fall very much, says Neotia, because they hadnt risen much in the first place. Todi agrees that the West Bengal market is extremely conservative. Prices are stable but volumes have dropped primarily because market sentiments are down. Still, properties at integrated townships are going from Rs 25 lakh to Rs 2 crore and beyond. Das points out that the average price in New Town Rajarhatwhere all the big players are investedfor a branded high-income group project is around Rs 2,800 a sq ft. A Bengal Unitech executive pegs it around Rs 3,400 a sq ftstill much lower than the Mumbai or even the Bangalore levels.
An Emaar MGF spokesperson says, while some pockets are experiencing a short-term slowdown, the demand-supply metrics in Kolkata largely remain stable. The market has not witnessed any sharp correction, deceleration or appreciation in prices, but the offtake has been relatively slow.
Caution on malls
Theres already a rethink on malls. Says Mohta of the Merlin group, Mall developers are rethinking plans from a sustainability perspective. But theres room for speciality malls. According to Kar of South City Projects, that has just opened a million sq ft plus mall in the city: From one lone mall two years ago to 20 plus malls being planned in the next two years, Kolkata and its peripheral areas have come a long way. However, there is a word of caution as many malls might not see the light of the day. Size, location, proper planning, tenant mix, F&B options and a sustainable model is crucial to malls becoming successful.
That said, Neotia sees an upward growth in all sectors. The demand may have fallen somewhat but its a temporary phenomenon. But as competition hots up and more players join in, realty watchers see a consolidation on the cards with only quality projects surviving the rush. The consumer isnt complaining.