Growth hinges on cheap land: retail industry

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Status of compulsory amenity one way to boost productivity

India is among the most expensive markets for retail real estate, while in terms of productivity from property it is among the lowest. That is why the industry wants retail recognised as a compulsory amenity so that it does not have to vie with others for real estate.

Indian retail realty prices are on par with the developed world, while the per capita income in India is just a fraction of that in those countries. With low margins, retail has to compete with other commercial ventures to find space in key areas of every city. Realty is a key factor inhibiting the growth of organised retail in India at seven per cent against 20-25 per cent in other emerging countries and more than 50 per cent in developed countries.

As per AT Kearney’s global retail development index, India slipped to 14th rank in 2013 as against fifth in 2012. India was in first place in 2009.

“Indian retailers spend 12 per cent of their total turnover on real estate costs while it is just four per cent globally. The government has to recognise retail as a compulsory amenity and bring in laws where specific portion of real estate projects can be allocated to retail. Retail will not have to compete with other high margin commercial ventures for retail space and this will take care of both availability and cost issues,” said Kumar Rajagopalan, CEO, retailers association of

India.

Arvind Singhal, chairman of Technopak Advisors, wants government to take up urban re-development so that real estate is made available for retail at affordable rates.

“The government is still the largest owner of land. Land pricing is a problem for every amenity like school, hospital or retail. Government should make good use of its vacant land and re-build its old buildings to make most of the land.

Developers also should be asked to allocate specific portion of their project for retail,’ he said.

However, Shubranshu Pani, regional director, retail services, JLL India, finds this will work only in some key cities. “Such allocation happens in developed countries where the size of organised retail is over 50 per cent. Organised retail is only seven per cent of the total retail in India and if the law is brought in for all projects, this space will lie vacant for want of retailers,” he said.

Singhal finds that in such a situation, the mom and pop shops will move in and increased availability of land will help more number of traditional retailers to become organised and existing modern retailers to grow. “Increasing the floor space index too will increase space availability and eventually bring down prices. Further, the floor area ratio should not include parking,” he said.

According to Pani, the real estate prices in India usually do not come down as people buy and keep land long-term. Indians look at land as an asset class meant for capital appreciation rather than returns.

Vasanth Kumar, executive director of Max Retail finds that improper development of civic infrastructure across all areas in the city also leads to high costs in certain areas. “There will only be some pockets in a particular city where the civic infrastructure and connectivity is good. Such areas will be in high demand and will be available only at high cost. Prices will rationalise if infrastructure is equally developed across the city,” he said.

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