The Rising Star of the East
Kolkata till now was considered the underdog of Indian real estate market. In recent times, the residential realty stability and fewer vacancies in commercial spaces compared to other cities has brought Kolkata to limelight. But there is still a long way to go.
In late 17th Century, an Englishman called Job Charnock stopped at three sleepy hamlets of Gobindapur, Sutanuti and Kalikata. He looked favourably at these villages where local trade already flourished. At first a smattering of mud huts, the settlement soon began to see the building of pucca houses, new roads, water tanks, a Town hall and British Fort William. This was Kolkata taking shape.
Capital of British India till 1912 and now the capital of West Bengal state, Kolkata is often termed as the‘city of joy’ or ‘Paris of the East’ because of its amalgamation of both the old and the new, the orient and the occident, the poor and the rich and commerce as well as politics. Today, West Bengal is the main commercial hub of East India, its economy driven by telecommunication, IT/ITeS and industries of manufacturing, heavy engineering, pharmaceuticals and food processing.
The New World Wealth report released in February this year found that the total wealth held in Kolkata was nearly $290 billion and the city had more millionaires than Bangalore, Hyderabad, Pune, Chennai or Gurgaon. Kolkata’s two localities – Ballygunge and Alipore emerged as among the most affluent in India.
Much of West Bengal growth is driven by infrastructure development of the state. Also,Adoption of the “Look East” policy by the Indian government has led to South-East Asian countries expanding into Indian market that is set to benefit Kolkata.
The Centre has approved a project to upgrade 558-km stretch of roads to link it to the neighbouring countries including Bangladesh, Nepal and Bhutan. One of the key features of the project includes a $130-million worth project for widening the 60-km-long National Highway 35 between Kolkata and Bangaon that will connect the country to adjoining countries.
Public transport in Kolkata is predominantly dependent on the Metro Railway network, trams, government and private buses and the Kolkata Suburban Railway. More Metro Railway networks will be implemented in the next five to six years that will connect Kolkata with the suburban areas in Howrah and North and South 24 Parganas.Also, to strengthen the city’s civic infrastructure by the year 2019, the Kolkata Municipal Corporation has articulated a plan to refurbish the water supply and restore the drainage network.
Other major developments include the 123-km road which will connect Diamond Harbour on the outskirts of the city and Rs 50 lakh funding to 125 municipalities to make New Town, one of the first ‘green city’ in the country.
Urban Development Issues
There is growing concern that capital-driven development fuelled by globalisation and privatisation is discounting the housing for poor. While, the initiatives are being taken to encourage housing for the middle- and upper-income population, the informal urban context of the city is getting ignored resulting in the exclusion majority of the city population living in slums.
To address the situation, Kolkata Municipal Corporation (KMC) is focusing on slum orBustee development to upgrade civic services like Water Supply, Drainage & Sewerage, Pathways and Lighting services etc. KMC is also introducing PPP models in slum redevelopment.
Other critical urban challenges facing the city are air pollution, water supply and waste management. According to the air quality index of the Central Pollution Control Board good air quality is 50 per cent below the standards in Kolkata and the city will have to reduce its annual average pollution levels by 44 per cent to be able to meet the clean air standards.
Centre for Science and Environment (CSE) India suggests that Kolkata has an enormous advantage in its elaborate public transport infrastructure including, trams, suburban rail, bus system and also metro. An immediate multi-modal integration of all these systems can be the permanent solution to it congestion and pollution.
It’s not just the air; the shortage of water supply is also of major concern. The city’s twofold water sources are river Hooghly and ground water. Out of these two sources, the water from River Hooghly is being treated and supplied to limited areas of KMC through the underground pipelines. The vast majority of remaining areas depend on the ground water source.
In a new initiative, the state Urban Development Department is developing the water supply infrastructure under the Centre’s JNNURM scheme to increase filtered water supply in the city by 877 million litres per day by the next year.The biggest filtration plant of 100 million gallon capacity is being set up in Rajarhat. Kolkata Municipal Corporation has almost completed the second Dhapa project which will produce 136 million litres filtered water a day.
Like many other cities across India, Kolkata’s growing problem of domestic waste is compounded by the fact that only 10 percent of Kolkata’s waste is recycled, contributing to the growing problem of the municipality’s waste disposal. KMC has now floated tenders inviting ‘expressions of interest’ for setting upwaste-to-energy (WTE) plants. This would reduce greenhouse gas emissions, prevent environmental damage from landfills and provide reliable renewable energy.
West Bengal is expected to face a shortage of 2.68 million units of dwellings, which will be required by 2030 and it is estimated that about 99% of this housing shortage will be for the households falling in the Economically Weaker Section (EWS) and Low Income Group (LIG) segments.
The Realty Wrap
Much of any region’s real-estate growth is dependent on the economic driver of the place. There have been some credible employment generators, such as WIPRO, Cognizant and Tata Consultancy Services who have established set-ups in Kolkata. But, still a lot of investment friendly initiatives are required to boost the commercial investment in the state, such as land policy reforms, SEZ allowance, uninterrupted utilities availability, connectivity to markets & raw materials etc. Furthermore, liquidity constraints, high construction costs and delays in obtaining the project approvals continue to trouble the developer community.
Kolkata Residential market trend
Source: Knight Frank Research
Moreover, Kolkata is not an investor’s destination for resident Indians or NRIs, unlike other cities like Bangalore, Delhi, Mumbai, Pune or Ahmedabad. The main reason cited is the lack of high-level job opportunities and economic growth. According to experts, those who do own a property in Kolkata have actually invested in Mumbai, Bangalore, or Delhi NCR for their children who may return to the country on professional assignments.
At present, Kolkata metropolitan area is spread over 1,886.67 square kilometres. North Kolkata is the oldest part of the city characterised by 19th-century architecture, dilapidated buildings, overpopulated slums, crowded bazaars and alleyways. Central Kolkata hosts the central business district while, East Kolkata is largely composed of newly developed neighbourhoods such as Salt lake, Rajarhat, Tangra, Beliaghata, Ultadanga, Phoolbagan etc. South Kolkata includes upscale localities such as Ballygunge, Alipore, New Alipore, Lansdowne, Bhowanipore, Kalighat etc.
According to PropTigerDataLabs, the number of launches in Kolkata in 2016 (January-November) dropped by four per cent when compared to the numbers in 2015. However, the number of units launched in the second quarter of the financial year 2016-17 was higher when compared to the same period previous year. The number of units launched in Q2 was 8,027. Five localities that were the top performers in 2016 in terms of sales were New Town, Rajarhat, UttarparaKotrung, Dum Dum and Howrah.
Dr.Samantak Das, Chief Economist & National Director – Research, Knight Frank India said, “In terms of micro markets, we expect Rajarhat to maintain positivity regarding the housing demand in the forthcoming years, considering the quantum of office-sector development and infrastructure underway in the region. Presently, we see good traction in the development of infrastructure facilities in Rajarhat to support growth of IT/ITeS sector and in couple of years it will be capable of offering equal opportunity to the sector as has been offered by cities like Hyderabad, Pune and Chennai. However, it remains to be seen if adequate state government policies are formulated to attract major players in the IT/ITeS sector.”
Market Overview in 2016 by Cushman & Wakefield
New launches continued at a sturdy momentum: The fourthquarter witnessed a 22% increase in new unit launches over theprevious quarter and stood at nearly 4,100 units. Averagenumber of units per project increased from 304 in the previousquarter to 582 in the current quarter, indicating a trend oflaunching large-sized projects. The north-east micro-markets ofHatisala, Newtown and Rajarhat witnessed almost all (98%) thelaunches during the quarter.
Affordable segment constituted 93% of the total new launches,with developers maintaining a high thrust on this segment. Thesegment noted a sharp increase of 37 percentage points fromthe previous quarter. On an annual basis, the share of launchesin the mid segment reduced significantly from 66% in 2015 to23% at the end of 2016.
Capital and rental values maintained status quo: Capital values in both high-end and mid segments remainedstable during the quarter. Rental values also remained broadlyunchanged from the previous quarter due to steady demand andadequate availability in the market
The Road to Success
Essentially, the spurt in economy will ensure the demand for housing, offices and ancillary developments like retail, entertainment etc. which will augur well for the state’s real-estate in the long term.
Chief Minister Mamata Banerjee has been trying to turn things around. The state government plans to set up businesses in the state seem to have started getting responses and new reform measures to an extent are reviving the realty market by attracting private and foreign investment.
The affordable housing has gained prominence in Kolkata and the supply of affordable projects has risen by around 3-4 percent on the Q-o-Q basis with the support of the various tax incentives by central government. Not surprisingly, 2BHK units made up more than 45 per cent of Kolkata realty landscape.
Kolkata’s office space market is showing a rise in the net absorption and decline in vacancies thereby moving towards a demand-driven market. Although transaction sizes have not increased much, there has been ajump in the number of transactions especially in peripheral locations like Rajarhat, Salt Lake Sector V, Topsia and EM Bypass. The commercial space demand came mainly from the engineering, manufacturing, telecommunication and pharmaceuticals sectors.
In the retail segment, only 5% out of the total 0.3 million square feet of the new inventories in the mall space is lying unoccupied. In comparison, the rate of vacancies varies from 9% to 33% in areas like Ahmedabad, Delhi NCR, Chennai, Bengaluru, Pune, and Mumbai.As per the city developers, the aspects like large market potential and positive economic outlook are attracting retailers to Kolkata. The city has the advantage of a being a metro with huge population base of which around 80 per cent are either landowners or under old tenancy with deep pockets. In addition, the high-salaried InfoTechcompanies’ senior executives, double-income families and the changing lifestyle habits of Kolkata middle class are driving the retail boom. The roadblocks in the growth story include the high property tax on the commercial establishments and excessive regulations and red tape in bringing goods into the city.
The Kolkata real estate emerging from its stagnation of past few years is operating with the definitive plan for growth. Going by the changing consumer trends, rising developer’s aspirations and the administration’s progressive plans for the state; Kolkata seems set to offer a stable real-estate market in all segments to the nation.