International Real Estate Summit
December, 2004, New Delhi

Address by Mr Sushil Ansal, Chairman, Housing Committee, FICCI and Chairman, Ansal Properties & Industries Ltd.

Mr. Jagdish Tytler, honorable Minister for NRI Affairs, Mr. Anil Baijal Secretary, Ministry of UD, Mr. Deepak Parekh, Mr. Satpal Khattar, Mr. Y.K. Modi other dignitaries at the dias, ladies and gentlemen,

I would like to extend a warm welcome to the various delegates and participants to this first International Real Estate Summit being organized by FICCI in partnership with Ministry of Urban Development. I am thankful to the various delegates specially the overseas delegates from countries like USA, Canada, Dubai, Singapore, Indonesia etc., who have traveled all the distance to be with us this morning.

The main purpose of organizing this summit is to expose international real estate developers the prospects and scope of property and infrastructure development in India. To expose them to the various reforms which have been, initiated to facilitate foreign participation and other further reforms which are on the anvil. To discuss some stories of success and some of failures and lessons that Government has learned so that same can be corrected. To hear the representatives of foreign companies about their experience of working in India and what corrections they would like us to introduce. At the same time the Indian companies and developers would learn about the opportunities of real estate development in Dubai, China, Indonesia, Malaysia and explore the possibilities of working there. The Indian construction companies did well in Iraq, Saudi Arabia and other gulf countries during the construction boom and had brought in lot of foreign exchange for the country.

PROSPECTS AND GROWTH POTENTIAL

Indian economy is on strong foundation. The foreign reserves have reached over 120 billion US $, stock index has crossed 6200 mark and the Rupee is getting stronger. Current account surplus is over 1.2 billion US dollars. The GDP growth is aimed between 6 to 7%. Government's attitude towards business, specially assisting flow of FDI and FII is positive.

Definition of Real Estate

Planning Commission for the first time, in the tenth Five Year Plan has introduced a separate chapter on Real Estate covering residential townships, commercial offices, shopping malls, entertainment centres, multiplexes, hotels and restaurants, industrial buildings, factories and government buildings as real estate activity. Real estate sector in India is the second largest employment generator next only to agriculture. About 250 ancillary industries directly or indirectly depend on real estate activity. The contribution to GDP by this sector at current prices is approx. 6.5% which in value terms comes to Rs.1,37,000 crores i.e, over 30 billion US dollars.

HOUSING

There is shortage of approx. 30 million dwelling units in the country which need an investment of approx. Rs.4,00,000 crores or approx. 80 billion US dollars including cost of services like water supply, roads, electricity, sewerage system etc.

National Housing and Habitat Policy has aimed at providing shelter for all by 2010. Government is committed to provide 2 million dwelling units per year. This is a tremendous opportunity for real estate companies to en-cash. No income tax is levied under section 80(i)(b) of the Income Tax Act for built up houses for lower and middle income group up to a certain specified built up area. This is a good motivation for builders to step in to meet the housing shortage in the country. Why should the Government not allow foreign direct investment and foreign participation in providing 2 million dwelling units per year i.e. in Group housing & Condominium Constructions.

RETAIL & LEISURE SEGMENT

Another fast developing sector is retail and leisure segment. Retail is considered as world's largest private industry.

India is the fourth largest economy as far as purchasing power is concerned just behind, USA, Japan and China. Even though 25% of the population lives below poverty line, India has a large and growing middle income group of over 300 million making it a strong emerging market. About 25 million sq ft of organized retail space is under construction in various parts of the country and will be ready by 2005. With close to 12 million retail outlets, India has largest retail density in the world. The total retail industry is growing at 8.5% p.a. and consumer spending has increased at 12% p.a. during the last three years. Unfortunately FDI into retail is still not permitted by the Government. How can Government expect to reach a high GDP growth rate until FDI is not allowed in this vital sector? Government must review its policy at the earliest in this respect.

IT SECTOR

There is explosion in the information technology sector. Outsourcing has become a global phenomina and is increasing @ 11% p.a. India is capturing a large segment of BPO and ITES business. NASCO and McKinsey survey has predicted that ITES sector in India will provide jobs to 1.5 million people by 2008 which will require several million sq ft of built up space & infrastructure by 2008.

STPs

India has launched upon a programme to put up software technology parks in order to promote and facilitate software exports from India. 100% foreign equity is permitted in STPs. Number of incentives and tax exemptions are being given by the Government to promote STPs and special economic zones. There is tremendous opportunity for foreign participation in this sector.

FINANCE SECTOR

Some pragmatic and visionary policies adopted by the Government has helped to increase availability of funds in the housing and urban development sector. Rates of interest have come down and adequate liquidity is available in the system. However, another area which needs government support is Real Estate Investment Trusts (REITS) and Real Estate Mutual Funds (REMF) on the lines being operated in USA and other foreign countries. This would facilitate retail investors to invest in housing through specialized and organized professional bodies/funds. Mr. Deepak Parekh will dwell.

SOME SUGGESTIONS:

There are however, certain basic problems which the Government has to address itself to attract foreign developers and investors to come to India.

01. Housing and land is a State subject. States have different rules and regulations. It is suggested that Central Government should prepare guidelines or model legislations which may be circulated to States for their adoption with no or minor variations according to the requirements of the State.

02. Cumbersome and time consuming sanctioning process has been inhibiting developers to come to this country. Some developers have returned home. We have been discussing about single window clearance system from several years. It is high time that the government took measures to ensure that the sanctioning process and other formalities are simplified.

03. The Master Plans and zonal plans in several States are yet to be finalized. Time bound program must be framed by States to complete Master Plan and zonal plans to facilitate foreign and domestic developers to plan their projects and investments

04. Allow foreign companies to purchase office buildings and high end condominium buildings for rental purposes so that supply of these properties increases thus bringing down rental values.

05. MOUD should create special cell to process and recommend all foreign direct investment cases.

06. Import of sophisticated plant, machinery and equipments for better quality and speedy construction should be allowed/ permitted.

07. Foreign design and consultancy companies should be encouraged to set up offices in the country to introduce world quality designs and technology.

08. Concerted action on the part of Central and State Governments is required to achieve the objective of shelter for all. Several initiatives towards legal/regulatory reforms have been taken by the Government with a view to create an enabling environment. These include repeal of Urban Land Ceiling & Regulation Act, 1976, circulation of Model Rent Control Legislation, Model Apartment Ownership Legislation and Model Property Regulation Bill to States for adoption subject to local variations. Several States have already adopted these measures. Other states should be urged to expedite their adoption.

09. Stamp duty is extremely high and must be rationalized and brought down to 2 to 3 per cent as per global practice.

10. Allow FDI in Group housing Condominium Constructions.

11. Reduce area for integrated townships to 50 acres.

12. Allow FDI in shopping malls & retail business.

13. Govt. authorities should be only facilitators & not provider of houses, as laid out in NHHP. Housing Boards & development authorities may enter into joint venture.

14. A change in mind set is required. Public-Private partnership in housing & infrastructure development is imperative for rapid growth.

15. Privatisation of Airports & Ports need to be speeded up.

16. Commonwealth are scheduled for 2010. Hotels, sports Stadia and other infrastructure to have successful games need to be expedited. This is another great opportunity for foreign developers & investors to step in.

In order to improve the quality of life in the cities, civic amenities like potable water, good sanitation, sewerage treatment and disposal, adequate electric supply, good roads need to be developed. State authorities which do not have adequate funds to develop these amenities should hand over them to private sector on BOT basis.

CONCLUSION

To Sum up

I have only broadly touched the issues which are important for bringing about a rapid growth in real estate development and housing and fulfill the dream and vision of the National Housing & Habitat Policy, 1998. There is tremendous opportunity in a growing country like ours and dynamic developers and investors can get handsome returns through their efforts and investments. We hope that the Government will quickly look into the recommendations which will be highlighted in this Summit so that both domestic and foreign developers and investors bring about a housing revolution in the country and at the same time are able to provide world class infrastructure to ensure a better quality of life for our citizens.

Thank you.