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Immense potential in the Indian construction market

India’s economy has been on the upswing ever since the process of economic reforms was started in 1991. The Indian construction industry is a key growth driver for the national economy, contributing on average 6.3% of the GDP. The industry is highly fragmented and overtly dominated by smaller builders, although major players, especially those involved in infrastructure development, have already made their mark in the international arena, and it is they who shape the future of the industry. 

The current size of the construction industry in India is estimated at $70.8bn, of which the 87 key players account for nearly one third, while the rest is distributed amongst the 25,000-plus smaller players, which eventually makes the sector highly fragmented. Construction activity in the industry is categorized into three major groups, i.e., infrastructure, non-residential and residential. A snapshot of the construction industry in India entails the following: 

• it is the second largest contributor to the national economy
• it is the second largest employment generation avenue in the country
• the infrastructure group is the highest category by sales value, followed by non-residential and residential groups
• the industrial subgroup has the highest contribution to the construction output, followed by roads and bridges, and power
• Larsen & Toubro is the largest infrastructure company in India, followed by Punj Lloyd and IVRCL
• DLF Universal is the largest property development company in India, followed by Unitech and Omaxe.

 Source: Central Statistics Organisation, 2008

A key factor which is responsible for the stupendous success of the Indian construction industry is the sustained political will of successive governments since 1991. India, with its abundant land mass area coupled with a billion-strong population, is a major market for infrastructure and property (non-residential and residential) development. Thus, the Indian construction industry is set to achieve its true potential of being a world beater, which clearly suggests the huge opportunity for various industry players.

 Source: Economic Survey, 2008 

The construction industry on average is currently growing faster than the national GDP. The key factors largely contributing to the strong growth in the Indian industry can be broadly classified along the following lines: 

• the opening up of various subgroups to the world market has resulted in an influx of global players
• availability of land (especially in urban areas) is set to increase on account of the repeal of Urban Land Control Rent Act (ULCRA) by nearly all state governments
• vast increase in the scale of projects
• increasing level of mechanisation coupled with use of sophisticated technology
• increasing use of IT positively aiding the construction industry in India
• improving the skill sets of the existing workforce by means of regular training and workshops
• introduction of Real Estate Mutual Funds (REMF).

The major drivers for the growth sentiments in the Indian construction industry include: 

• extending the process of the deregulation of the Indian economy to core infrastructure and property (non-residential and residential) groups
• increased budgetary investment outlay for infrastructure and property development in the 11^th Economic Plan
• increased use of public private partnership schemes, especially for the development of large projects
• development of large power plants to mitigate the supply deficit
• completion of the on-going ‘Golden Quadrilateral’ projects in the roads and bridges, and railways subgroups
• accelerated construction activity in urban infrastructure development, largely due to the rapidly changing urban-rural mix in India
• India’s emergence as a preferred destination for the IT & ITES industry and a low-cost manufacturing hub, coupled with the boom in the retail and tourism sector.

Despite the strong all round growth in the construction industry in India, the sector continues to be riddled with impending challenges pertaining to:

• lack of trained and skilled manpower
• price increases in the upstream industries
• supplies of raw material and equipment
• land acquisition, conversion and associated red tape
• absence of standard contracts
• lack of professional project management
• multi-tier dispute resolution mechanisms
• serious shortage of housing.

Despite the challenges, the fundamentals in the Indian construction industry are sound and well placed to catapult Indian companies into the international arena.

There are a number of important factors propelling the domestic construction industry into an era of high growth, including: 

• India is amongst the world’s fastest growing economies
• political will for the development of the country will continue to fuel demand in the construction industry as a whole
• the government’s agenda for ‘inclusive growth for all’ is aimed at infrastructure development in rural areas
• entry of global players (developers and builders as well as equity investors) on account of the continued process of liberalisation
• large scale non-residential development, especially the increased activity in the development of the special economic zones (SEZs). 

Source: PMR Publications (14-7-08)

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August ’07 – Building project

Joint venture to build office tower

The New Delhi office of Hines, the international real estate firm, and DLF Ltd., India's largest real estate company, announced the signing of a Memorandum of Understanding (MoU) to form a venture to master plan and develop a site of 15 acres located on Golf Course Road in Gurgaon, India. The site is located directly across from the DLF Golf Course and its residential community known as DLF Golf Links.

Hines and DLF also announced the selection of the internationally renowned firm Robert A.M. Stern Architects, to develop a master plan for the entire site as well as design the first phase of the complex, a major 30-story office tower of 80,000 square meters together with ground-floor retail space and a garage. This is the first project in India for Hines and Stern. Previously, the firms have collaborated on several projects in the United States, Mexico and Brazil.

In addition to the office tower, the master plan is likely to include high-end retail shops, restaurant and entertainment venues, a hotel, and landscaped exterior and interior public spaces. It may also include serviced apartments and a second office tower. The total mixed-use complex is envisioned to include approximately 235,000 square meters of construction.

"We are proud that our first development project in India will be in partnership with DLF," said Daniel MacEachron, managing director of Hines India Real Estate Pvt. Ltd. "Golf Course Road is the premier address in Gurgaon. DLF, Hines and Robert Stern share a vision that this project should be the best-conceived and best-executed project in Northern India."

"Our goal is to create a truly unique complex," said Rajiv Singh, DLF's vice chairman. "Through a combination of exceptional design provided by Bob Stern and his talented team, and the experience Hines brings in the conceptualization and development of major urban mixed-use projects in cities around the world, we feel we are partnering with a world-class combination of talent. When completed, this complex will be the heart of Gurgaon, commercially and as a social-gathering destination."

"We are extremely enthusiastic to have the opportunity to enter the Indian market with the commission for such a major urban complex," said Robert Stern.

DLF is the largest and leading real estate development company in India. DLF was established in New Delhi in 1946. In its initial years the company undertook the development of various prestigious South Delhi colonies such as South Extension and Greater Kailash. Today DLF is a major player across India, with presence in 31 cities. DLF's projects span the entire gamut of real estate development - residential, commercial, retail, hotels, infrastructure and Special Economic Zone (SEZ) developments. The firm's real estate experience includes over 220 million square feet of existing development and over 600 million square feet of planned projects.

DLF's office building division is one of the group's most admired business lines. With nearly 32 million square feet of developed buildings, as well as ongoing projects, the office sector is a significant contributor to DLF's rapid rate of growth as an organization. The company has undertaken the development of 22 urban colonies, as well as an entire integrated 3,000-acre township, known as DLF City in Gurgaon. DLF is committed to quality, trust and customer sensitivity, as well as delivering on its promises with agility and financial prudence. In September 2006 DLF was the only real estate firm amongst the 60 businesses named Superbrands of India in the real estate category.

Robert A.M. Stern Architects is a 300-person firm of architects, landscape architects, interior designers and supporting staff. Over its 38-year history, the firm has established an international reputation as a leading design firm with wide experience in residential, commercial and institutional work. Stern is Dean of the Yale School of Architecture. As founder and Senior Partner he personally directs the design of each of the firm's projects. Other senior members of the design team who will be working on the Golf Course Road project include Graham Wyatt, partner, who has been with the firm since 1983 and Meghan McDermott, associate partner, who has been with the firm since 1997.

Hines is a privately owned real estate firm actively engaged in real estate development, investment and property management worldwide, with presence in 15 countries and offices in 96 cities across the globe. The Hines portfolio of projects underway, completed, acquired and managed, includes more than 950 properties representing approximately 380 million square feet. Total assets currently under management are valued at approximately USD 16 billion. •