Why property prices are high when demand has fallen?

Banks are slashing interest rates for first-time home buyers. Reports suggest real estate prices have fallen by 10-20 % in many places. People are getting out of their rented apartments, scouring for housing deals in the festival season, which is when the real estate market takes a two-week nap.

However, the early birds are not finding any prize worms. Instead, they seem to run up against the familiar high rates, and belligerent attitudes. "I went back to the areas where I hunted for a house a year ago, and the builder is still quoting the same price. He was quite dismissive when I asked about a rate cut," says software professional Neha Swarup.

What's going on in the real estate market? Is the drop in demand just a myth? If not, why hasn't it brought prices down? "Of course, there's huge drop in the demand for property, and some deals have been struck at lower rates. But an overall drop in rates is yet to happen," says a real estate expert.

He points out that, traditionally, no deals take place during the Navratri season. "We are keeping a close watch on the situation. We believe that if there is no dramatic rise in demand by Diwali, real estate prices will come down." So perhaps if Neha were to wait it out some more, she may have some happy news. As for her anxiety about missing the bus to low interest rates, she can breathe e a s y. B a n k i n g officials say interest rates are unlikely to go up further. They believe the Reserve Bank of India is unlikely to keep up its monetary tightening measures.

While the news of lower rates gave Neha hope, it has left Ajit Ram puzzled. He was at a loss to understand why banks would offer lower interest on home loans to new customers, while existing customers would continue to pay higher rates. “In a floating rate loan, the interest rate should go up as well as down, along with other interest rates in the economy. When the rates were coming down a few years ago, there were hardly any downward revisions.

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World's tallest bridge, now in Jammu

The tallest bridge in the world is in France and is over 300 metres high. But soon a rail bridge being constructed in Jammu will stand much taller. The world's tallest rail bridge is coming up at Kauri, a hamlet in Jammu's Reasi district. When it is completed by December 2009, the bridge will rise 359 m above the Chenab River. The tallest road bridge in the world is the 343 m high Millau Viaduct in France. "The Millau Bridge in France is 300 m high and the height of its pillars is 343 m. If that's considered the tallest in the world, then definitely this is taller than that," said Ishwar Chand, Deputy Chief Engineer, Chenab Bridge Project. The Chenab bridge will be 1,315 m long and is being built at a cost of over Rs 600 crore, across a highly seismic zone. The bridge is an engineering marvel and is being built using high quality earthquake resistant steel. The bridge will eventually make the Valley accessible by train and remove the biggest stumbling block for the Jammu-Udhampur-Srinagar-Baramulla railway route, which is full of tunnels and difficult terrain. Work on the Jammu-Udhampur line was completed in 2004 but it will be years before the full route is operational. The laying of tracks has started in the north of Udhampur, which will connect Katra and make it easy for Vaishno Devi pilgrims to reach there. Bahadur Singh, a local resident said, "It was a very far flung area, but now its entire picture has changed. Earlier, there was a lot of problem when going to Jammu or Srinagar, but now it will be much easier". Once the railway line is complete, remote areas of the state will be connected to the rest of the country and trade and commerce in the Valley will receive a huge boost.

India's construction boom: Boon or bust?

P.M.S. Prasad is not a man you would expect to be worried. The CEO and president of Reliance Industries' oil and gas business is in the enviable position of having a long list of buyers lined up to purchase natural gas from its record-breaking discovery in the Krishna Godavari basin, off India's east coast.

But at a recent press conference, Prasad's worry showed through as he was forced to admit that the prospecting program of India's largest private-sector holder of oil and gas blocks was delayed because of the unavailability of rigs. "The commercial production of gas from the discovered fields in the Krishna Godavari basin will not be affected, as we will divert some of the rigs from exploration into production, to make good the shortfall in rig availability in the global markets," Prasad assured reporters. For a company known for quick execution, it was a rare public setback.

Reliance is not alone: Almost every Indian company -- big or small -- that has some expertise in construction finds itself flooded with orders that are nearly three to four times its annual sales. The size and pace of orders could threaten the development of the country's already creaking and short-supplied infrastructure. "Execution is the biggest issue in India today, especially on time and within budget," says Pratyush Kumar, president and chief executive officer of GE Infrastructure, India.

Although construction companies are prepared to spend money to raise their production capacities, experts say that a shortage of skilled talent and the limited ability of capital equipment suppliers to meet demand mean that skillful project management and innovative solutions will be necessary to prevent bottlenecks.

India's planned infrastructure outlay over the next five years has been revised upward by various government authorities, from $150 billion to almost $475 billion. The country currently spends around $21 billion a year on infrastructure, compared to China's $150 billion. Corporate capital spending tracked by research firms like the Centre for Monitoring Indian Economy (CMIE) is at a multi-year high in India. The effect of all of this demand can be seen in the order books of infrastructure builders, which have also reached a multi-year high.

Consider just a few examples: Punj Lloyd, one of the country's largest engineering, procurement and construction (EPC) companies, earned 72% more income for the quarter ended June 2007, at Rs 1,4179.5 million ($359.43 million). Yet, its order backlog rose to Rs 152,250 million ($3,859.32 million). Larsen & Toubro, one of Asia's largest vertically integrated engineering and construction companies, announced that gross sales rose 47% in the quarter ended September 2007 to Rs 55.74 billion ($1.41 billion), and yet its order backlog rose to a record Rs 400 billion ($10.14 billion). At Wartsila India, which had an order book of one times sales in 2003, the backlogs have risen to almost three times that amount. And Patel Engineering, which expects to close the current year with sales of Rs 16,000 million ($405.58 million) has an order book of Rs 54,000 million ($1.37 billion).

Rupen Patel, managing director of Patel Engineering, says that alone, the planned roll-out of highways by the National Highways Authority of India (NHAI) over the course of the next 10 years exceeds the total turnover of all construction companies in India today. "Construction companies have never seen such a boom in India. Even if [they all] did only road projects and left all work on building airports and power plants aside, NHAI still has more work to offer than firms can take," he says.

"The turnover of all construction companies in India last year was around $15 billion. This year it may rise to $20 billion. But a total of $50 billion is [slated] to be spent on construction every year in India, which requires a capability of 2.5 times the sector's size," says a senior executive at IVRCL Infrastructures who did not wish to be named. India will need several billion-dollar, pure-play construction companies to be able to execute such projects, but it has only a couple of such companies, calling into question the ability of the private sector to build out infrastructure in a public-private partnership mode.

Foreign firms might view the huge gap between the sector's existing capabilities and those required as an opportunity to make their mark in India. Indeed, the infrastructure spending boom in India has benefited a bevy of overseas companies, such as Dongfang Electric Corporation in China and Doosan Heavy Industries and Construction Company in Korea, who are filling orders for turbines used to generate power. A number of leading global construction companies, such as Australia's Leighton Holdings and Italian-Thai Development Public Company, have also entered India.

Skilled-labor Shortage

It's difficult to fathom the words "talent shortage" in a country of a billion people that's getting younger over time. But speak to any infrastructure builder, and you hear anecdotes about shortages of trained fitters, welders, masons and plumbers. "Whether we will get the people necessary to support the growth is the real challenge. Both engineering and blue-collared skilled workers are in short supply. Fitters and welders are not available in the numbers you want. The industry also needs mechanical engineers who have worked in capital goods industries and would like to pursue a career [in that sector] rather than switch into software," says Allen Antao, vice president, process equipment, at Godrej & Boyce Manufacturing Company.

"Once, India had such a supply of labor that we never thought we'd run out, but today things are certainly moving towards that," says Satish Magar, chairman and managing director of Magarpatta Township Development & Construction Company, which has developed a 250-acre plot near the city of Pune in western India.

According to Magar, semi-skilled labor was once brought in from the neighboring south Indian states of Andhra Pradesh and Karnataka, but now projects in the west Indian state of Maharashtra are pulling in laborers from far flung Eastern states of Orissa and West Bengal where surplus laborers are still available. Importing lower-skilled workers from overseas would be too problematic, "given the significant wage differentials and the effect such inflated costs would have on a project's viability," says Patel.

The construction industry remains one of India's largest employers. Realizing the need for skilled vocational staff, the industry has begun collaborating with academic institutions to either train staff for plumbing and masonry type work, or to set up in-house training programs. "We are tying up with industrial training institutes for education and vocational development as well as organizing local training at our school," says Godrej's Antao.

Training is important, because by mechanizing their operations, companies have needed to substitute low-end, semi-skilled artisans with comparatively high-end machine operators who are in short supply. As a result, wages for crane operators and others with higher levels of expertise have risen faster than the average for other industrial workers. For instance, Sanjay Verma, head of ship power for Wartsila India, estimates that welders have seen their wages rise by 30% to 40%, while those for traditionally well-compensated naval architects and marine engineers have risen by 50% over a 3-4 year period.

Antao says that the appreciation of the rupee and the rise in wages are happening so quickly that their effect on costs cannot be countered with a rise in productivity. "If margins drop as a result, companies may not be able to commit large sums for capital investments with the same freedom as we would otherwise."

One area of shortage which hurts all infrastructure builders is the availability of skilled project managers. In the case of many developers, "there may not be that level of experience available to execute the size of the projects [that are] planned," says Aniruddha Joshi, executive vice president of the Hiranandani family-controlled Hirco Group, which has large realty projects underway in India. India hasn't seen many large projects until very recently, and the country has traditionally not produced enough skilled project managers to coordinate multiple vendors and optimal allocation of resources.

For prospective engineering students, civil engineering had lost its charm and was seen as a low-growth area, where progress would be limited and the hours long and hard. In comparison, many males who completed computer engineering programs found jobs as code writers in India's burgeoning software services industry. These jobs, which came with a possibility of overseas placements, also made the men good prospects in the traditional Indian marriage market. But with the construction boom, "salaries for civil engineers from reputed colleges, which averaged around Rs 7,000 ($190) a month three years ago, have risen to around Rs 25,000 ($600) a month now, which makes them comparable to what software engineers get. As a result, we are seeing engineering colleges report a higher percentage of students opting for civil engineering courses after several years of relative drought," says Patel.

Many companies have turned to acquisitions to cover their short-term labor needs. Punj Lloyd has acquired Singapore's Sembawang E&C to help provide expertise in EPC projects, while Patel Engineering has bought U.S.-based Westcon Microtunneling to build on its construction expertise. Many firms are also hiring expatriate project managers to take charge of projects and train juniors to assume such positions over time.

Verma feels that the high wages for such positions in India may help in attracting talent from other areas like Eastern Europe and Japan. Patel says skilled project managers and planning engineers could be hired from outside India as well. Reliance Industries, for instance, has an expatriate as its chief of drilling services, who helps train its drillers and rig operators to meet target dates for commercial production of gas.

Joshi sees a silver lining in the shortage of human resources as well. He cites the example of Japan, where construction companies adopted a "top-down" method that helped attract talent to the industry -- one that Japanese society considered a "tough, dangerous and dirty" profession. "It's good to have constraints; it forces you to come up with new solutions," says Joshi.

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Buying a house? Beware of these tricks.

Everybody wants a piece of real estate. The sector has been growing at 25-30 per cent a year since 2003, fired primarily by low interest on housing loans and the rising affluence of homebuyers. Those who had bought stocks of real estate companies, whose valuations have gone through the roof, are a happy lot. However, the same cannot necessarily be said of scores of financially and emotionally bleeding homebuyers. The developers play lord and master to middle-income individuals, who often live like monks to fulfill their dream of owning a house. Most sale agreements are heavily loaded in favour of builders in the currently unregulated market.

This disillusionment is reflected in the rise in the number of complaints that has accompanied the growth of the sector. In the first 25 days of August 2007, the Delhi-based National Consumer Helpline, a consumers' body, received 33 housing-related complaints. The Consumer Guidance Society of India (CGSI), Mumbai, says it gets two-three cases a day. In this scenario, what chance do you have of safeguarding your interests as a buyer?

In 1993, the Supreme Court ruled in favour of M.K. Gupta in his case against the Lucknow Development Authority for not delivering his flat on time. This landmark judgment brought housing construction under the purview of the Consumer Protection Act, 1986.

This, however, hasn't done much to change the unscrupulous ways of builders. Owing to the bonhomie between developers, the authorities and the contractors, projects get sanctioned easily but the quality of construction goes unquestioned. Supreme Court advocate C.M. Srikumar says: "Even in cooperative societies, the contractor, the

architect and the office-bearers of the society dupe the public."

Rahul Todi, managing director, Bengal Shrachi Housing Development, says: "Unlike other consumer products, here we sell a concept first. If there is a gap between expectation and reality, then we are not doing our job properly."

What are the most common games that developers play? Here are eight common tricks and ways in which you can guard against them.

I. When do I get my house?

Most agreements do not clearly specify the date of delivery. For instance, one says: "Completion of the building is expected to be delivered by the date mentioned in the covering letter of this allotment. The delivery of the possession is subject to force majeure." What this means is that you cannot hold the developer responsible if he does not stick to the promised delivery date.

There have been cases when the delivery has been delayed by 12 months or more. Typically, the buyer would have paid 95 per cent of the price by the time he reaches the expected delivery date. If he is living in a rented house, delays will drive his calculations awry as he would not have factored in this additional rent (see Double Bite). Mumbai stockbroker Bhupendra M. Pitroda, 58, fought a legal battle against Megha Property Developers for five years. Reason: delayed possession.

Pitroda was promised delivery of the flat he booked in 1998 in Navi Mumbai's Madhuri Cooperative Society Housing Project within 18 months. The builder later said that delivery would take another six months. When Pitroda visited the site six months later, he felt that the delivery would not happen soon. So, he instructed his bank to stop payment of the balance 37.5 per cent of the apartment's cost to Megha Developers.

The developer promptly sold off the flat. An aggrieved Pitroda then moved the State Commission in July 2000. Three years later, the commission asked Megha Developers to refund Pitroda the money he had paid with 15 per cent interest. Pitroda was also awarded a compensation of Rs 15,000 for the mental agony caused and Rs 5,000 for legal costs.

The developer appealed in the National Commission, which upheld the State Commission order but cut the interest to 9 per cent. The developer then moved the Supreme Court. "The Supreme Court judge flung the papers in the face of the builder's lawyer and asked the builder to compensate me immediately. The judgment was over in a minute," says Pitroda. Through the legal battle, Pitroda made 25 appearances in the State Commission, three in the National Commission and one in the Supreme Court.

Many agreements have penalty clauses for delayed delivery, but they are without bite. For example: "If the company fails to complete the construction of the said building/apartment within the period as aforesaid, then the company shall pay to the allottee compensation at the rate of Rs 5 per sq. ft of the super area per month for the period of such delay." What this means is that for a 1,000-sq. ft flat, you would get a compensation of Rs 5,000 per month�a pittance (see Double Bite).

In most cases, buyers put up with the delay quietly rather than 'antagonise' the builder. Most fear retribution, harassment and further delays in delivery. This is not entirely baseless. For one, agreement papers are designed to protect the builder. Two, your intention to fight the builder may look like a joke given your handicap in terms of financial prowess and influence. Three, there is no industry regulator you can turn to for redressal. Suresh Virmani of National Consumer Helpline says: "We generally encourage a dialogue between buyers and sellers to settle disputes. If that fails, the matter is taken to the regulatory body. But we can't even suggest this in real estate because there is no regulatory body."

What to do. Don't just take the builder's word on the progress of construction. Check it out from time to time, as Pitroda did. If you feel a delay is likely, start building up pressure on the developer. The best way to do this is to form a society, says Virmani. Usually, builders have many projects running at the same time and they push the ones where the pressure is higher. "The more the number of buyers, the greater is the pressure," says Bharath Jairaj of Consumer Action Group, Chennai.

II. Where are my papers?

A lot of builders are evasive about giving the completion certificate at the time of handing over the flat. A completion certificate is issued by municipal authorities and establishes that the building complies with the approved plan. A developer would not get the certificate if he deviates from the plan.

You cannot prove ownership over your house if you don't have the certificate as you would not be able to get the house registered. Also, you may not be able to get utility connections. You will have problems selling, mortgaging or reverse mortgaging the house as it will not be in your name. In the worst case, the unapproved parts of your house would be demolished by the municipal authorities. Not a happy state of affairs.

Businessman Mohammed Haroon, 45, got his flat in Tulip Garden, Gurgaon, six years ago, but he has not got the completion certificate yet. The same goes for the other 59-odd flat owners there. Together, they took Sarvapriya Developers, which built Tulip Garden, to the consumer court. "After four years, in mid-August this year, the court directed the builder to hand over the completion certificates within a month, or pay Rs 5,000 each as compensation to all the flat owners," says Haroon. "But we know that none of the two will come our way and are prepared to approach the Delhi High Court in this matter."

What to do. Sale agreements often don't mention the completion certificate. If yours doesn't and you notice it before signing the papers, insist on the inclusion of a clause that you will be given the completion certificate when the flat is handed over to you. Ask the builder for it as soon as he announces that the house is ready for possession. If, like Haroon, you move into the house without it, the court will probably be your last resort.

III. What's the guarantee of quality?

Within a month of moving into his apartment in Mahagun Manor, Noida, Rajiv Raghunath, 41, got trapped inside the house as the door lock failed. In six months, the plaster started peeling off and the fans stopped working. In another few months, water started seeping in as the pipes had corroded. "I felt cheated. This wasn't worth my money," says Raghunath.

As of now, there is no way for a buyer to check the building materials used or the quality of construction. Says advocate Anupam Srivastava, who is with law firm Chambers of Law: "Quality is a subjective matter. Buyers should enter into an agreement on the kind of material that the builder will use."

In October 2005, Pune's Gera Developments started a trend by providing a 5-year warranty on its buildings. The warranty, however, is subject to the conditions that no structural changes be made to the house and that there be no misuse.

What to do. Don't fall for the builder's glib talk. Insist on including the sanctioned plan of the building and the specifications of the raw materials to be used for construction in the purchase agreement. If you are already facing quality problems, you can go to the consumer court. Says Anand Patwardhan, a consumer activist and lawyer: "If you want to approach the consumer court, move it within two years from the day you take possession." Alternatively, flat owners can form a Residents' Welfare Association (RWA) and get the builder to fix the problems, as Raghunath, an RWA member, did.

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Nashik to be next real estate destination

After Pune, it could be destination Nashik for industry as Pune is fast running out of land. The vigorous land acuisition by the Maharashtra Industrial Development Corporation (MIDC) and private industry here is soon going to ensure this.

Sources said that the state government’s industrial infrastructure development arm is looking to create a land bank of between 10,000-20,000 hectares in the two cities, Pune and Nashik, with emphasis on the latter.

However, the attraction of destination Pune remains. MIDC is looking to acquire land for which notifications have been issued at Ranjangaon, Talegaon, Chakan, Karla and Khed.

The state government is believed to have received 1800 applications for the Chakan industrial area, 1100 for Ranjangaon and 600 for Talegaon. The land bank with the MIDC, Pune region, is close to being exhausted and it is facing problems in acquiring new land.

Industry experts think Nashik will prove to be the alternative to Pune. “Nashik, with it’s huge land availability, abudant water supply and connectivity with Mumbai offers ideal locations. It has got mild climate like Pune too,” sources said.

(via Economic Times.)

Affordable urban housing

Investments in real estate have a multiplier effect on income and employment. A HUDCO-IIM Ahmedabad study estimates that every rupee invested in this sector adds 78 paisa to the state's GDE.

The study estimates that for every direct job created in the housing industry, eight jobs are created indirectly as Indian real estate sector is on a high growth trajectory. And according to global consultancy firm, Merrill Lynch, the sector will grow from $12 billion in 2005 to $90 billion by 2015.

Much of the growth will come from the housing market. Despite the good news that the average home ownership age has come down from 45 years in the 1980s to 32 years now, India's realty sector is still dominated by the unorganised and fly-by-night players. Very few corporates and large players have a national presence.

It is well known that rising middle class salaries, easy access to finance and affordable interest rates have given a boost to the industry but restrictive legislations and non-transparent transactions have nullified some of these gains India's real estate sector is governed by over 100 and mostly archaic laws, some even dating back to the 19th century.

These barriers extract an exorbitant cost: a McKinsey study calculates that removing land market barriers can contribute an addi- tional one per cent to India's GDP growth rate. Confirming the trend, a World Bank study estimates that an average housing project in India takes anything up to six years to complete as against 15-18 months in China. India also charges one of the highest levels of stamp duty in the world.

In most states, it ranges from 10 to 15 per cent, though Delhi has brought it down to a low 6 per cent recently for certain categories of home buyer High stamp duties have lead to unregistered - and all cash-property transactions and transfers through the Power of Attorney, entailing considerable financial loss to the exchequer. The National Housing and Habitat Policy of 1998 recommended a stamp duty rate of 2-3 per cent across the country but it is nowhere near implementation. The Urban Land (Ceiling & Regulation) Act 1976 hinders availability of land for housing projects.

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Mall mania: The great gamble

A discussion with a large real estate developer in Mumbai lets you in on a few secrets of the current mall mania in India. Mall construction is just one of the many activities handled by the developer. So a developer isn’t overtly concerned if one of his malls flounders.

“If it doesn’t work, we still own the land. We will convert it into a commercial property or residential complex,” he says, nonchalantly. It’s an attitude that marketers ought to prepare for before betting their crores on any of the 400 malls scheduled to be up and running in India in the next four to five years, or even the 200-odd currently in existence.

Remember Crossroads, in Mumbai? In the late 90s, Crossroads, one of the first malls built by the Piramal Group, brought in a paradigm shift to the Indian shopping experience. The mall enjoyed large footfalls in the early years of its operations, even as the phenomenon caught on in other parts of the country. And then it all started going downhill.

Unused to having people browse without necessarily forking out cash, the management decided to introduce entry fees, hiked parking charges and made it mandatory for customers to carry identity cards or credit cards. Within months, footfalls plummeted, tenants started renegotiating rentals and moving out, till McDonald’s, which had bought its space, was the sole tenant that remained.

While developers busy themselves erecting malls and counting the moolah, it’s nothing less than a high-stakes gamble for tenants. The right choice, and it’s jackpot for the brand. But if the location fails, brand marketers are left with an unviable investment. Concerns about the supply of real estate often compel brand marketers to take quick decisions — some of which may backfire.

“Too much analysis leads to paralysis. One has to take a chance. We realise that when it comes to malls, one will make mistakes,” explains Subhinder Singh Prem, MD, Reebok India. Coffee chain major Barista is present across 25 malls across India, with 35-to-40 others signed up.

Partha Duttagupta, CEO, Barista, believes the success rate in malls has been around 80%. For the remaining 20%, Duttagupta says factors like bad location, high rentals or the absence of a multiplex often spoils the party, and a wait-and-watch policy has to be resorted to. “If things don’t improve, we either renegotiate or do promotions to increase offtake,” he says.

To renegotiate, brands go back to the developer if he still owns the premises and has merely leased the space to the tenants. But if he has sold the mall to a third party, who further sells it to various retailers, accountability flies out of the window. Samar Singh Sheikhawat, VP – marketing, Spencers, says that in the west, tenants get into talks with mall developers prior to construction.

“They consider and incorporate your store design. Out here, if I am not interested, there’s a queue waiting to take that space,” he says. This wait, say retailers, often is prolonged as most malls overshoot their deadlines. And there are numerous instances of developers wanting to renegotiate rates as the date of completion approaches.

“Ideally, one wants the mall to be ready when one moves in. But developers want to catch the season and open a half-done mall,” says Prem. “Tenants today approach mall developers with skepticism as three years after signing up, developers turn back to renegotiate citing a spike in real estate prices,” admits Sandeep Runwal, director, Runwal Group, which runs R-Mall in Mumbai.

India may be witnessing a mall rush, but the very definition of a mall is convoluted. Ideally, a space above half a million square feet falls in the category of a mall, but in India, supermarkets are labeled and sold as malls. “They are actually shopping centres like Delhi’s Palika Bazaar on steroids,” says Raman Mangalorkar, MD, Greenbox Realty, a real estate company which develops, builds, leases and manages retail property.

Adds Ajay Mehra, CEO of Times Retail, “Malls today may have upgraded customer experience and have become evolved shopping centres, but they cannot be called malls in the true sense.” According to realty consultants, quite a few malls across metros are currently underperforming, owing to reasons as varied as lack of adequate parking facilities, wrong tenant mix, poor internal circulation and the lack of a multiplex or hypermarket.

“Developers didn’t know what malls are all about and hurried to build them in the past few years. There is a need to put aside the earlier knowledge, understand mall culture and manage malls as a product,” says Kunal Banerjee, president – marketing & communication, Ansal API, which currently has four malls, and plans to add 16 more.

Mall-Practice

It doesn’t help that most mall owners liken themselves to landlords. “They look down on the tenant rather than jointly cooperating for the welfare of the mall,” rues Amit Jatia, MD & JV partner, McDonald’s India – West & South. Being a tenant in the worst sense of the term brings with it a slew of problems.

Retailers have to bear common area maintenance charges like air-conditioning, toilets and general space upkeep, which constitute half the rentals paid. “Area maintenance is high because of inefficient management of space,” explains Mangalorkar. According to Saket Bhatnagar, principal consultant, Technopak, the primary source of revenue for any mall is the rental from various tenants (around 85%-90%). The rest is through advertisement space and parking.

The rental figures vary significantly for different malls depending on factors like city, location and proposition of the mall. The rentals for new malls in cities like Delhi and Mumbai range from Rs 150 to Rs 400 per sq ft. For the smaller cities, the rentals are much lower — at Rs 80 to Rs 100 for tier I towns and Rs 60 to Rs 80 for tier II towns.

“Rentals are extremely high and form a large chunk of overall cost structure. Compared to international standards, it’s about twice the revenues earned by retailers. A lot of retailers will have to stop business if this continues,” says Times’ Mehra. Industry estimates reveal that real estate costs in India sometimes reach as high as 8%-10% of the revenues, whereas in the West, it accounts for 2% of revenues.

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