Gujarat Property Market
One often hears of ‘Vibrant Gujarat’ or Gujarat Shining’ and its real estate offering fantastic growth opportunities, but is the Gujarat growth story for real. Sapna Srivastava takes a closer look at the state’s real estate sector.
The state of Gujarat with an advantage of industrial legacy and people’s entrepreneurship spirit has got further growth impetus with the announcement of varied infrastructure initiatives, the prominent being Delhi-Mumbai Industrial Corridor (DMIC) and Gujarat International Finance Tec-City (GIFT). Moreover, setting up of SEZs, IT parks, specialized townships and retail & commercial hubs in major cities is driving the residential sector too. Earlier considered an affordable real estate market, the cities of Gujarat like Ahmedabad, Surat and Vadodra are seeing influx of luxury and ultra-luxury developments. Harith Parikh, Owner, RE/MAX Realty Solutions said, “The dynamics of the real estate have seen quite a change in the last decade or so in Gujarat owing to the economic growth, infrastructure development and technological advancements. The developers are changing their modus operandi and making their approach more customer-centric. Some of the reasons is the growing number of developers and the product options available to the customer today.”
Under the Smart Cities Mission, the cities of Ahmedabad, Surat, Vadodara, Rajkot, Bhavnagar, Junagadh and Dahod are getting retrofitted and undergoing urban renewal to make them sustainable and citizen friendly.
Infrastructure push& Realty sector
Ahmedabad, the commercial capital of Gujarat is witnessing significant infrastructure growth and transition in realty space. The main factors fuelling the growth of the city are its proximity to DMIC & GIFT City and coming up of Ahmedabad- Dholera Special Investment Region. In fact, the twin cities – Ahmedabad and Gandhinagar are set to form the largest urban agglomeration in Gujarat. Ahmedabad, the traditional manufacturing baseof textile, chemical, pharmaceutical and gems is also emerging as the automobile manufacturing hub. Gandhinagar on the other hand is attracting IT and ITeS companies.
In terms of residential market, an integrated township is the new trend and national level developers are now constructing properties in this segment in Ahmedabad and Gandhinagar. Overall, the residential property demand remains subdued leading to restrained new launches. The office space market in Ahmedabad is showing marginal increase in vacancy levels but retail market is witnessing high vacancy levels in malls. However, with numerous infrastructure improvements in pipeline, the residential segment especially the micro markets along the Ahmedabad-Gandhinagar corridor hold great potential for real estate development. On the other hand, The IT/ITeS and BFSI sectors are expected to push up the office market in Ahmedabad.
Surat, the diamond capital of India is also the fastest in adopting technology for infrastructure improvement and city administration. Severale-governance solutions developed by Microsoft India have already been implemented in thecity. The city is one of the 16 locations chosen by IBM to develop its smarty city program. This rapidly modernizing city is dotted with variety of malls and multiplexes.
While diamond industry remains its economic driver, textile sector especially denim manufacturing is coming up in a big way in the city. BFSI is the prime driver of new office space in Surat. On the lines of GIFT City in Gandhinagar, Diamond Research and Mercantile City (DREAM City) coming up in Surat, will fuel the residential development of micro markets in its proximity.
Vadodra, considered the cultural capital of Gujarat will also reap the benefits of DMIC passing through its borders. One of the most industrialized districts of the state, it is now developing into a knowledge centre with companies like L&T and Microsoft opening their knowledge city and digital experience centre respectively in Vadodra.
Unlike Ahmedabad and Surat, where new residential developments are largely restricted to select areas, new residential launches are spread out in all directions in Vadodara, most of which are coming up near industrial estates. Being an industrial state, the office market is not so well developed but central business district (CBD) areas continue to be the hub of office space development.
According to Nirav Kothary, Head – Gujarat Operations & National Director – Industrial Services, JLL India, “Gujarat cities such as Ahmedabad, Vadodara, Surat, Rajkot, Jamnagar and Vapi are the nodes of urban development and independent growth centres. Therefore, all of them manifest distinct realty market behaviors.
The Challenges Remain
A surge of industries in and around major cities and emergence of new business sectors in Gujarat have created a flux of employment opportunities, attracting workforce from across the country. This phenomenon has also sustained the real estate market in the state which is now more buyer focused. While, the demand in residential sector has increased, BRTS and Outer Ring Road haveextended the city limits to peripheral locations thereby creating oversupply of real estate. As BalbirsinghKhalsa, National Director – Industrial, LRG & Branch Director – Ahmedabad, Knight Frank India puts it, “The residential market of Ahmedabad is coming out of clouds and sales and launches have started gaining momentum, but the high level of unsold inventory is not allowing the upward price movement. Developers are expecting better sales with the revival in the manufacturing activity and renewed interest by investors in GIFT city.”
As per recent study by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) real estate investments in Gujarat have grown at a compounded annual growth rate (CAGR) of about 28 per cent between 2005and 2015, however the state remained behind Kerala (59 per cent growth), Karnataka (40 per cent), UP (32 per cent) and Rajasthan (29 percent).
The realty market of Gujarat’s major cities remains stable and has already undergone minor price corrections. Affordable housing segment is the most in demand and recommended for self-use buying. Experts feel, from an investment perspective, no significant price appreciation is expected in the coming two or three years.
Till now the developers focus was on affordable and mid-segment housing market. Now, luxury residential segment is evolving in cities like Ahmedabad, Surat and Gandhinagar and developers are launching projects designed by international designers and consultants. These properties have a limited target market wherein, NRIs form the bulk of the buyers. An offshoot of luxury property is the weekend homes, which are also coming in prominence around the major cities of the state. Many developers feel luxury projects give better profit margins and are less affected by recession. However analysts believe, Gujarat luxury market is different than traditional markets like Mumbai and Delhi-Gurgaon and given that it is still going through a learning curve, it is early to understand the trend and shape of this segment
Talking about the commercial real estate across the cities, the office market has grown in both the capital as well as rental values indicating more commercial investment and increasing businesses. Conversely, the retail market has gone down with stagnant hotels and multiplexes growth and absence of launch of any new mall in more than a year. The trend reflects the limited spending by consumers on luxury commodities due to the unsettled economic scenario. Although, the mall vacancy has reduced over the previous quarter due to increased leasing activity in select markets, it is still the highest compared to other prominent cities
A Promising Future
Gujarat is an emerging metropolitan cluster undergoing the growth challenges. With the government focusing on investment and building smart cities in the state, it seems to be on a positive growth trajectory. The infrastructure stimulus coupled with the proactive government policies for property buying is also making the real estate investment attractive again for the prospective buyers. In the commercial market, the expanding services sector and increasing number of Indian and multinational companies setting base in Gujarat are expected to drive the demand for office and retail space in the state.
Many developers are planning new launches or have already announced projects due to the improving sentiments in the market. For instance, at the recently held Realty Plus conclave in Ahmedabad, Rocky Israni, Managing Director Pacifica Companies, one of the leading real-estate developers stated that the company had sold 1000 housing units in just three months. Indeed, the improving macro-economic conditions, enabling policy environment and attractive valuations are luring back the buyers. All these factors make Gujarat real estate a favourable investment destination.