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Expatriates adding to realty demand: Study

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Mall culture growing in small towns

Forward realty About 300 m sq ft additional retail space by 2011. Almost 600 malls, from nearly 200 now, by 2010. Rentals expected to rise further in 2007. Real estate demand to be led by residential sector in the next decade.

Bangalore June 2 Influx of expatriates has resulted in more demand for high-end residential properties in all metropolitan cities, says a study "South India Retail & Realty Report: 2015 and Beyond" by Images F&R Research with real estate services firm Cushman & Wakefield as its knowledge partner.

It says the country's smaller towns and cities would catch up with the "mall culture" prevalent in urban centres.

According to the report, by 2011 roughly 300-million-sq-ft additional retail space would be generated. Currently, there are about 200 malls, which are expected to rise to almost 600 by 2010-11.

Of the new malls coming up, 40 per cent are concentrated in smaller towns and cities.

The total supply of shopping centre space in South India is 14.1 million sq ft (2006-07), accounting for an increase of about five million sq ft over the availability in 2004.

Capital value up

Capital value of residential properties across all centres has seen a rise during the review period, with 2007 witnessing the highest rates (Chennai: Rs 9,300 per sq ft, Bangalore: Rs 7,175 per sq ft, and Hyderabad: Rs 3,875 per sq ft).

Besides the influx of expatriates, other reasons for this exponential growth include increase in rental values by about 25-45 per cent in all prime residential markets across the country; demand shift from central locations to suburbs owing to more supply and lesser rentals; and the long-awaited Comprehensive Development Plan is also expected, which proposes an additional Floor Area Ratio.

Rents to rise

Thanks to more IT companies and foreign banks setting shop in Chennai and the booming retail market in the city, capital values and rentals are expected to rise further in 2007.

Capital values of commercial properties went down between 2002 and 2003, followed by a consistent rise till 2007 across the three metropolitan cities in the South.

Rates were highest in 2007 (Chennai: Rs 4,920 per sq ft; Bangalore: Rs 4,400 per sq ft; and Hyderabad: Rs 3,633 per sq ft) and lowest in 2003 (Chennai: Rs 2,720 per sq ft; Bangalore: Rs 3,180 per sq ft; and Hyderabad: Rs 2,000 per sq ft). Bangalore set the rates in commercial property prices from 2001 to 2005, till Chennai surpassed Bangalore in 2006.

Office space demand

Commercial rentals fell during 2003 and 2004, followed by a rise till 2007. This phenomenon was visible across all metros, except Hyderabad, where there was an incremental rise throughout the review period.

About 70 per cent of demand for office space in India is being driven by the IT/ITeS and BPO sectors. Coimbatore, Thiruvananthapuram and Kochi are benefiting from the marked price increases in the office markets of the top three cities.

Capital values increased throughout the review period across all centres. Rates were highest in 2007 (Bangalore: Rs 17,083 per sq ft; Hyderabad: Rs 16,388 per sq ft, and Chennai: Rs 11,014 per sq ft).

Forecast

According to Cushman & Wakefield, the next decade will see the residential sector continuing to hold the largest pie of the real estate demand, followed by commercial, hospitality and retail, with demand for organised real estate increasing by about 8-9 times.

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