Sanjeev, the broker we met at the beginning of the chapter, explained his enthusiasm for Indian real estate to me in this way:
[I]ntrinsically, if you believe in the India story . . . then you know Gurgaon is only fifteen kilometers from the airport, you know the biggest mall is coming up here, you know that most of MNCs are relocating to Gurgaon, then where is the risk over a five year cycle? A hundred and fifty fortune five hundred companies are in the pipeline to come to Gurgaon. They are going to move about a thousand senior Indian expats back into this country. BMW has opened its largest showroom in Asia in a mall here. So
abhi [as of now], we have not yet scratched the surface.
Sanjeev believes that Gurgaon is poised for growth. The indicators? The possible relocation of multinational firms, the opening of a foreign luxury car showroom and the construction of a large mall signal that other investors also “believe in the India story.” Moreover,
Sanjeev believes that Gurgaon’s connections to the global economy, aided by its proximity to the airport, will grow. For Sanjeev, the predicted influx of multinational corporations is an index of future prosperity, a likelihood on which one should bet by investing in real estate.
Like many of my informants, Sanjeev’s pitch for investing in real estate hinges on his belief that multinational companies will continue to move their Indian headquarters, back- office services, software development units, and retail outlets to Gurgaon, integrating Gurgaon – and India in general – more closely with the global economy over time. Reports and presentations selling Indian real estate to investors reinforce the idea that economic growth depends on India’s new role in the global economy and on the further development of this role. They also suggest that as integration progresses, Indian society will converge culturally with the West. I examine the belief in the growth of an internationally familiar, consumerist Indian society in Chapter Five. Here, I argue that to bet on Indian real estate is to wager on India’s international economic integration and socio-cultural convergence.
Since liberalization, India’s economy has bypassed significant industrial development in favor of service-sector led growth. Services grew to around fifty percent of India’s GDP by 2005, while industry’s share leveled off since liberalization, and agriculture continued to decline (Banga 2005; Gordon and Gupta 2004). However, while the service sector has grown, service sector employment has not; in fact, services’ share of employment actually fell slightly between 1990 and 2000. India’s jobless service-sector growth means that the
majority of Indians still work in agriculture, the sector whose share of output has dropped by thirty-three percent since the 1950s (Gordon and Gupta 2004, 5-8). Indian agriculture is in crisis: public investment has declined, new trade policies have left farmers vulnerable to
volatile international commodity prices, and input costs have grown (exacerbated by the entrance of international agro-business into Indian markets). By 2007, foodgrain production had slipped back to 1970s levels, and an epidemic of farmer suicides made international headlines (Jeromi 2007; Planning Commission 2007; Reddy and Galab 2006; Suri 2006).
The Indian real estate industry does not serve the majority of the population, which remains mired in this rural crisis Rather, it serves the high-profile, fast-growing, and prosperous segments of the service sector. Since the 1990s, developers have provided offices for business services, IT (information technology), communications, banking, and insurance companies, and they have constructed hotels, restaurants, and shopping malls.
Industry documents employ a rhetoric of growth to argue that the demand for service-sector buildings that the leading edge of economic liberalization has produced indicates plenty of future demand for similar buildings. In particular, real estate reports harp
on the growth of IT, an industry closely tied to international sources of contracts, funding, and now ownership.45 Emphasis on an “expanding service sector” and IT/ITes in industry reports’ “demand driver” lists makes sense in light of the fact that the IT industry currently accounts for “around 75% of the total demand” for Indian commercial real estate (JP Morgan 2007, 40). So naturally industry reports and Indian developers’ prospectuses are
45 Liberalized in the mid-1980s, the object of favorable state policies, and (partially) funded by venture
capitalists from the U.S., India’s IT industry has grown tremendously fast, with a compound annual growth rate of 50 percent during the 1990s. As the practice of “body shopping,” i.e., farming Indian software engineers out abroad, has declined, more and more multinational corporations have begun “off-shoring,” i.e., establishing their own subsidiary software development units in India (see Dossani and Kenney 2002; Upadhya 2004; Xiang 2007). However, as Gordon and Gupta explain, while IT and IT enabled services (including software
development, call centers, and business process outsourcing) have been “the most visible and well-known dimension of the take-off in services,” they make up only a small percentage of the growing service sector: “In fact, although IT exports have had a profound impact on the balance of payments, the sector remains a small component of GDP. As of 2003, business services (which includes IT) were only about 1 ¾ percent of GDP, accounting for just 3 percent of total services output” (Gordon and Gupta 2004, 4). Nevertheless, IT is a major consumer of Indian commercial real estate.
peppered with charts like “IT Industry: Increasing Real Estate Requirements” which match the growth of the IT/ITes sector to estimates of its continued demand for office space (Emaar MGF Land Ltd. 2007, 55). Industry consensus holds that the IT/ITes industry will “continue to be the primary driver behind A-Grade leasehold office space sector,” joined by other sunrise industries associated with the “new economy” and international investment (e.g., financial services, biosciences, pharmaceuticals, etc.) (DTZ 2007, 4).
Developers and investors believe that India’s service-sector heavy growth will lead India to improve its place in a global hierarchy of economies over time. This expected growth provides an aspirational path up what my informants called the “value chain.” Various industry reports hint that the transformation from back-office services to research and development is already underway: “From a mere provider of cheap labour as seen earlier, India is now a long term investment destination,” claims real estate consultancy DTZ (DTZ 2007, 4). Kamal Nath, former Minister of Commerce and Industry asserts that “the country’s journey upward from rudimentary call centers in basements” (Nath 2007, 86) will continue because growth is “implicit in the architecture of the ITES value chain that India is currently climbing. Leaving the simpler voice-based functions far behind, India has moved up to the highly complex territory of KPO [Knowledge Process Outsourcing],” off-shoring engineering, architectural, and biotech services (Nath 2007, 84).
This aspirational vision of India’s increasing integration with the global economy takes the IT sector – itself a small segment of the services sector and an even smaller percentage of employment – as the bellwether of “the Indian economy,” (a synecdoche that ignores most of the country’s economic activity and its populace). Real estate industry members believe that movement “up the value chain” will drive real estate growth as well.
An executive at a private equity firm claimed that as multinational firms like GE and Microsoft established research and development centers in places like Bangalore, the incomes of the “highly trained people” they employed rose:
So kind of the product now they aspired from the developers also started going up. So last four-five years in fact then you saw a shift in the kind of the real estate that started coming into the country. It was more aspirational. It was more in terms of quality, in terms of features, in terms of, you know, overall offering.
He suggests that as India’s IT industry becomes more knowledge-based, providing more “value added” for foreign firms, the Indian real estate industry will also progress, offering more sophisticated products. He believes that the IT and real estate industries can climb the “value chain” together.
Based on this belief in increasing integration and growth, real estate reports and investor presentations commonly recast disparities between India and other countries as potential growth opportunities and thus as advertisements for investment. Delhi-based Parsvnath’s investor presentation reminds the viewer that whereas China has 800,000 hotel rooms and Manhattan alone has 100,000, there are only 105,000 hotel rooms in all of India. Rather than seeing this figure as a sign of poverty, he uses it as evidence for a remarkable investment opportunity in the hospitality sector (Parsvnath Developers Ltd. 2007).
Developers make similar arguments about other scarcities: the comparative lack of mortgage penetration, the dearth of organized retail, the meager contribution of real estate to GDP, the slow rate of urbanization,and the low number of housing units in India. Thus, by harping on growth, investor presentations and industry reports miraculously transform an infrastructure- poor country with an acute housing shortage into an attractive real estate investment
opportunity. They suggest that an investment in Indian real estate is a wager that these
indicators will converge on an international “norm” as the economy becomes more closely tied to global trends.
Developers and fund managers often mention India’s housing shortage, for example, citing anywhere from 19 to 30 million units needed. They estimate that new housing
construction in India is only growing at four percent, lagging behind China’s 15 percent a year (Slater 2002), and predict that the shortage will grow, from 20 million units in 2005 to 80 million units by 2012 (Unitech 2008). Industry members cite these figures to prove the industry’s social relevance, as well as to advertise the need for construction. As R. R. Singh, Director General of the real estate industry lobby group NAREDCO, told me, “the demand and supply gap is huge so there is tremendous scope of investment in construction and real estate industry. We have a 22-30 millions housing shortage.” Developers rarely mention that what’s needed is housing for the poor, since that is not seen as a profitable investment, nor that they overwhelmingly produce housing for the rich, since that would negate their claims to social relevance.46
Just as housing needs to be built, according to this logic, so do modern shopping malls and stores. A report on the Indian retail real estate sector by the Indian retail advisory firm Technopak and the Indian bank ICICI describes India as a “late entrant” to the “shopping mall phenomenon”:
46 While developers publicly talk about filling the housing shortage and “shelter for all,” some privately admit the discrepancy between the need for housing and what they build. For example, the marketing director for a Gurgaon-based developer told me, plainly: “These days, these high end apartments sell at about a crore – minimum, to start with – minimum a crore and upwards. But what about that 20 lakh guy or 25 lakh guy? Where the real demand is, when that real report comes in, that India Report, when they talking about housing shortfall of 28 million units, that is where the 28 million unit is. It is not there.” Of course, a 20 lakh house would sill be out of reach of most Indians.
Currently, there are 137 operational malls in India, and still expected to grow at 40-50 percent per annum. However if you consider population to mall ratio, we are way behind some of the developed economies. USA, with just about 380 million
inhabitants, has over 1200 shopping malls.
The comparison leads the authors to determine that in order to “catch up” to the developed world, “India needs at least 1000 modern shopping malls in over 500 towns and cities,
providing high quality space options to various consumer goods and service providers to reach out to burgeoning consuming class” (ICICI Property Services and Technopak Advisory 2007, iii, my emphasis). Similarly, reports cite the statistic that “organized retail currently represents only 3% or $7 bn [billion] of the total $320 bn retail market India, one of the lowest penetrations globally” to bolster the prediction that formal, “organized” retail will surely grow (Unitech 2008). This gap-prediction routine is a call to action: in order to keep pace with the “next wave” of service sector growth, the reports urge, invest in “organized” retail formats now (ICICI Property Services and Technopak Advisory 2007, 2- 2).
The representative of a foreign retail developer explained that the dearth of “organized” retail presents his firm with an opportunity:
And see what happens is, when you come to a market and you find something missing – like everybody says that India has only three percent or four percent of organized retail, rest everything is unorganized – but that unorganized thing is opportunity, right, actually if you look at it.
Similarly, he continued, a lack of “quality” real estate development provides a fortuitous business opening:
Same way in development, if somebody comes to India and sees there is hopeless development which is done across. That means
then opportunity of doing the right development and being a successful developer.
Another developer concurred that there was room for improvement, complaining that by international standards, the malls in India are not really malls but just “department stores.” He concluded, “We call them malls, but it is nothing. Retail has yet to start.”
Such comparisons lead to the characterization of the Indian real estate market as “immature.” Ajay, an analyst with a New-York based Indian real estate investment fund complained that “the markets here [in India] are very very very – not really unevolved, but they’re not that mature,” a claim he substantiated by citing the low mortgage to GDP ratio. Informants routinely began explanations with phrases like “Since you are from a very advanced economy. . .” to underscore their assumption that I would be used to a different level of real estate development. They also used terms like “catching up,” or made comments such as “the retail industry here is still at the very early stage” – all of which indicate that they believe that India is “behind” the “developed” world but moving forward on the same historical trajectory.
Following this logic of comparison and catch-up, the lack of the kind of assets that the global real estate industry likes to buy and sell, or what my informants call “something
missing,” is an indication that these assets will soon be built. For example, a real estate report by the Indian investment bank Edelweiss Capital argues that
Investable real estate assets in India are only USD 50-80 bn [billion] or 6-10% of India’s GDP compared with 40-50% in most developed countries. As the sector becomes more organised and conducive to institutional funding, we expect investable assets to increase to 20-25% of GDP over the next ten years. This implies investable asset creation of USD 480-600 bn, which at 40% equity funding, means a further market cap
All this predicted asset creation requires funding and promises returns. Edelweiss Capital’s analysts have transformed the difference between India and “most developed countries” (what could be seen as a shortcoming) into scope for growth, which is an advertisement for investment. This logic explains why the predicted growth of the real estate sector itself is an ubiquitous selling point in industry literature.47
One informant claimed that this kind of gap/opportunity logic led him to predict that Indian real estate values would rise after 2004; he saw that real estate prices were “underperforming” based on the assumption that they should keep pace with inflation. Similarly, a developer in Kolkata told me that land prices will continue to increase in India because they were not yet at “accepted price norms” internationally: “So if in Singapore, the price is a thousand Singapore dollars per square foot, compared to Bombay or Delhi, the economic makeup is not that behind.” Convinced that India is similar but lagging in prices, he predicted that there would be price “convergence” in “five to ten years.”
The subtext of this comparative discourse is the assumption that India will become more like other nations over time, eventually meeting the “standard” for hotel rooms, population to mall ratio, or urbanization levels. Despite whatever makes India unique, these reports all assume that the country is destined to follow a trajectory that leads to shopping malls, office parks, hotels, and high-rise housing bought with mortgages. Moreover, that trajectory is shared by other “emerging economies.” One private equity executive told me that his bosses had done work in Mexico a few years back, and that they believed that they could “replicate the same kind of a business model maybe in India.” Success in Mexico in 2001
47 Estimates of the total industry value of the real estate industry range from US$45-50 billion in 2010 to a staggering US$90 billion by 2015.
qualified them to work in India in 2007. By applying various statistical “benchmarks,” industry members find the “scope for growth” they use to advertise Indian real estate as an investment destination.
So strong is the idea that India should conform to statistical indicators from other countries that many of my informants spoke with prescriptive authority. Note, for example, the slippage between extrapolation and prescription in the following exchange with the consultant Pankaj:
Pankaj; . . . What needs to change obviously is the fact that you are talking about, I mean in sheer numbers today our urban population could be about 300 to 320 million. That needs to increase to about 550 million in the next 25 years.
LS; When you say needs to increase?
Pankaj; I mean, will increase to about 550 million, if you look at population growth and urbanization changes.
LS; So is that just looking at past trends and extrapolating [ forward?
Pankaj; Absolutely, absolutely. And these are various
extrapolations. You are talking about the need for urban capacity to more or less double over the next twenty-five years.
As Pankaj translates projections into prescriptions, he reflects the normative force of accumulated industry reports, which seem to suggest that India needs to urbanize, needs to increase the mortgage penetration, and needs to have more space for organized retail.
Some business sources use urbanization as a projected outcome of economic growth and a sign of future demand for real estate: according to the Wall Street Journal, for example, “the huge migration from rural areas to cities in China and India means that the urban population in both countries is forecast to increase by 25% in the next decade, creating
demand for every property type, from homes to shopping centers” (Kilbinger 2007). In the circular logic of industry rhetoric, however, other sources assert that urbanization is an imperative if growth is to be attained. For example, one Economic Times article uses the claim,