Bangalore Real Estate market speeds northwards

This article discusses about the driving force behind the unrealistic land prices..err..realistic land prices

Land prices rocket to a new high
The Driving Force: Easing Of FDI Norms, Creating Land Banks By Sujit John/TNN
Bangalore: Landlords are kings. Bangalore is witnessing feverish land acquisition activity by developers, and anybody with a parcel of land is today hot property.
Consequently, land prices, which were beginning to stabilise some time ago, has once again shot up. A property consultant says he had closed a land deal in Whitefield
a month ago for Rs 1,000/sqft, but today in the same area there are transactions happening at Rs 1,200/sqft.
“Some land owners are asking for prices as steep as Rs 1,500/sqft,” he says.
In Hebbal, land prices have touched Rs 1,500/sqft against Rs 1,100/sqft about 6-8 months ago. And land owners are beginning to ask for up to Rs 1,700/sqft.
Towards Yelahanka, land rates have touched 1,000/sqft and on Doddaballapur Road (near North West County), it is seen to be touching Rs 700-800/sqft.
Industry analysts say this is being driven partly by the expectation of foreign investment flows into the property business following the recent easing of norms for such investment.
“A few months ago, local developers were saying land has become very expensive and this wouldn’t be the right time to buy. But that’s changed. Everybody’s now trying to block large parcels of land in good locations,’’ says Mayank Saksena of Chesterton Meghraj Property Consultants. Such land blocking would enable local developers to compel international developers to enter into joint ventures with them to develop these prime properties. A number of foreign construction majors are seen to be interested in building integrated townships in India.
Srikanth Srinivasan, director in management consulting company JCSS Global, says his company alone is working on three integrated township projects in Bangalore, all of them involving foreign majors and each on over 200 acres of land.
The Puravankara-Keppel Land joint venture is planning three massive projects. Some see the frenetic land acquisition to be the result also of the trend towards built-to-suit facilities for corporates. Such facilities require large land parcels because companies want to consolidate all operations in that space and simultaneously provide for scalability.
“So developers feel the need to build a good land bank,’’ says Ankur Srivastava, managing director of property consultancy DTZ Debenham Tie Leung.

Reforms In Real Estate – The FDI way

Foreign Direct Investment (FDI) basically is the revenue brought into the country by foreign agencies for the purpose of business or investments, through the official Foreign Investment Promotion Board (FIPB) channels. The Indian Government has allowed FDIs for several industries in the recent past. FDI in Real estate is being permitted since January 2002. Despite the fact that it is almost three years since the FDI was allowed in Real Estate, the response is not encouraging. But after the recent cabinet clearance and reforms on FDI in real estate, things have started to look up.

The Cabinet Committee on Economic Affairs liberalised rules for foreign investment in the real estate and construction sector, said a senior industry ministry official.
The move is another step to reform India's financial sector and deepen the liberalisation process which kicked off in 1991 when the country embraced free market reforms.
To start with, the 100-acre criterion for FDI in realty has been removed.
The government will shortly announce its decision on modifying FDI norms in construction sector to make them more construction-centric rather than land-centric.
Though foreign investment was allowed in the sector earlier too, too many restrictions were preventing flow of FDI.
In order to avoid speculation in real estate by foreign investors, the sale of undeveloped land has been prohibited.
Minimum area to be developed under each project would be a minimum land area of 10 hectares in the case of serviced housing plots; and 50,000 sq mts in the case of construction-development projects. In the case of combined project, any one of the above two conditions would suffice.
The investment would be subject to minimum capitalisation of $10 million for wholly owned subsidiaries and $5 million for joint ventures with Indian partners.
The funds would have to be brought in within six months of commencement of business of the company.
Also, foreign investors have been barred from selling underdeveloped plots. Only fully developed service plots can be sold.
FDI in real estate should be taken trough automatic route, not FIPB.
The government is keen on allowing FDI in the construction sector as it would not only generate employment but also spur development of urban infrastructure besides bringing in hi-tech construction technology. FDI in construction would also stimulate the steel and cement industries.
Currently, FDI is permitted only in township development and with various conditions like $10 million investment

Benefits of FDI in Real Estate
FDI in real estate can create major inflows of funds that can enhance domestic investment to achieve a higher level of real estate development. FDI can certainly bring in the funds at reasonably cheaper rates, besides new ideas and technologies, which would enhance the efficiency of the Indian construction industry. A major part of the cumbersome procedures of the government and RBI are simplified with the FDI policy. So, the impact on the real estate industry can be significant, leading to increased competition levels among the local developers, in terms of price, quality and timing. The potential of growth and contribution of the real estate industry to the GDP is tremendous in India, as compared to other countries;