India - Real Estate Blues

Is real estate the answer to India’s infrastructure problems? So it would seem, judging by some recent examples. The Delhi Metro in 2006-07 got more revenue from real estate than from its transport operations (Rs 252 crore, against Rs 223 crore). The previous year, the metro had raised even more (Rs 296 crore) from real estate selling and leasing. The Hyderabad metro, which is to be built by private concessionaires at zero cost to the state government, will get a couple of million square feet of space to use commercially. The Delhi airport project too will see a substantial part of its project cost financed by selling or leasing land that has been handed over to the project, for housing hotels, offices and airport-related companies.
The risks inherent in this are obvious, especially when real estate deals do not always have the full value paid by cheque. Or, as happened with the Bangalore-Mysore highway, which was given out to a private company, critics created a controversy by alleging that too much land had been handed over along the length of the highway, together with the rights to develop the real estate. Or, land prices crash and so the assumptions made at bidding time no longer hold true.
Still, the trend is catching on. The Delhi Transport Corporation hopes to dig itself out of its financial hole by re-developing its bus depots into multi-purpose centres — using the real estate for hotels, shopping malls and the like. The 2010 Commonwealth Games in Delhi are being part-financed by taking the Yamuna’s flood plain and selling apartments built on it (to house athletes during the games) to subsequent owners. Some of the more important special economic zones that are planned in the vicinity of the big towns and cities are more in the way of real estate developments than the term SEZ would lead you to believe — but that seems to be the price to pay for getting functioning IT parks and industrial estates.
Indeed, the primary attraction of many industrial locations would also appear to be the amount of land made available — Tata Motors’ Singur project in West Bengal, for instance, has been given about 1,000 acres at nominal charge. Why, even the large software companies have taken land at throwaway prices on a scale that would seem far in excess of their business needs. Everyone, it seems, is either a disguised real estate developer or sees the virtue of having land banks — even if they are not in the same line of business as DLF and Unitech.
It is possible to defend this, of course. After all, everyone knows that metros are not viable in most parts of the world, so why not allow them to develop shops and offices above their depots and stations so that they become self-sustaining enterprises? The alternative would be for the government to fork out the capital cost and then recurring running costs as well. In the case of the Hyderabad metro, for instance, the project concessionaires are being allowed to build and lease shops at stations, and offices above the terminal depots; indeed, it is explained that no extra land is being given for this (as has been done for the Delhi metro, though); the project concessionaires have to build above ground, within the existing floor-area ratio.
This then is the flip side to India’s real estate story. Everyone is familiar with the fact that governments and developers have taken land prices so high that it makes it very difficult for ordinary working people to afford for themselves even a small flat. But it is those same high prices for land that help subsidise so many infrastructural projects, and indeed make them possible in the cities.