CLSA analysts had visited China and here is their take on how Real Estate Development stack up in both India and China after meeting 8 property development companies, across 6 cities including Tier I cities (Shanghai, Beijing, Guangzhou) and Tier II cities (Shenyang, Qingdao and Hangzhou). Our comments appear in Italics.
Government Policies:
China: Chinese real estate development sector is more susceptible to regulatory changes than Indian property sector. government has introduced several measures adversely impacting the real estate sector viz., 70/90 rule, Land Appreciation Tax etc.
India: Regulatory environment remains favorable to Developers due to relationships enjoyed by State and Central government Politicians / Bureaucreats.
India runs a parallel black money economy and Real Estate is one of the first and best heavens for these crooks.
Pre-Selling Properties:
Chinese developers can pre-sell a residential property only when the construction is 1/3rd or 2/3rd complete. Indian developers can pre-sell even before starting to dig.
In the absence of a regulator in Real Estate, Developer is the King and not the consumer.
Landbank:
Chinese developers carry 4-10 years of landbank (taking into account growth targets) is carried by Chinese developers as compared to 8-15 years of landbank by Indian developers putting pressure on cash flow to maintain the same. In China, bulk of landbank is ready to develop with most of the approvals in place, whereas, a large chunk of landbank of Indian companies is agricultural / yet to be possessed.
Land Acquisition:
China has fully transparent Land Acquisition process in which the developer has to acquire land in an open auction / tender mostly from the Government, while Indian counterparts purchase agricultural land from farmers at a much cheaper price.
Poor illiterate farmers are always taken for a ride. Land Sharks can go to any extent and the well connected mafia of Politicians and Bureaucrats can silence anybody. Town and City planning is totally absent.
Payment on Residential Properties:
20-40% of the buyers pay the cost of entire residence in China. This can be attributed to single child policy adopted by China decades ago where the new couple find funding from 2 additional sources [Parents]
Property Inventory / Supply:
Small town like Shenyang with 7mn population had new supply of 100m sf of residential properties in 2007. Compare this to total supply of residential properties in Mumbai including its suburbs, Navi Mumbai and Thane etc will be 85m sf over the next 3 years.
Do we have a Plan and Vision ? Maybe in bits and pieces without any implementation road map.
Retail Rentals:
Prime retail rentals in Shanghai are nearly double those of price retail rentals in Mumbai and Delhi. Shanghai has high concentration of super premium luxury brands such as Louis Vuitton, Hermes, Fendi etc.
Indicates Prosperous Chinese, Good Luck!!!
India is likely to lose its cost advantage very soon and Industrial emigration will be inevitable if the Indian Land Sharks are not eliminated soon. [Read July's Business World]
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