Kochi and Thiruvananthapuram, Kerala's two major cities, have a cumulative office space of 14 million square feet — the highest among tier-II cities, according to a report by the Confederation of Real Estate Developers' Associations of India (CREDAI) Kerala and Cushman & Wakefield.
Thiruvananthapuram, the state’s capital, and Kochi are among the top 10 emerging real estate markets, it added.
Kerala was the only state with two cities in this list. Both cities have exhibited potential by scoring decently across most parameters, but more significantly on aspects such as infrastructure (air travel, metro development), income levels, and housing affordability.
Additionally, the report said that Kerala’s real estate sector is poised for substantial growth as developers target tier-II markets for expansion, given the state’s infrastructure delivery record, socio-economic framework, and availability of talent.
“With favourable government policies, a large diaspora of skilled non-resident Keralites, qualified and skilled talent pool and improved infrastructure, we anticipate Kerala to be an attractive destination for corporate occupiers and developers exploring alternative locations beyond the top 8 real estate markets," said VS Sridhar, managing director for Tamil Nadu and Kerala at Cushman & Wakefield India.
With the advent of IT/IT-SEZ and IT parks in Kochi, Thiruvananthapuram and Thrissur, cities in Kerala have started to witness the creation of an ecosystem around commercial office market development, which continues to grow fast, it said.
Apart from Kochi and Trivandrum, the report highlights Kozhikode, Thrissur and Palakkad as cities that have taken significant strides in real estate development. It said Kerala could be well-positioned to become a leading destination for office occupiers looking at alternatives to the major cities to set up operational bases in tier-II cities.
Driving factors
The report pointed out that Kerala had an urbanisation rate – at which people shift from the rural areas to urban centres – of 48 percent, which is higher than the India average of 31 percent, and the gap has widened of late, according to government data.
Additionally, there is a large contingent of non-residential Keralites working in higher-income countries including the US, the UK, Australia and in West Asia. Their remittances drive consumer spending, attracting retail brands and mall developers to the state.
"Kerala's average monthly household expenditure not only surpassed the national average but also exceeded that of most industrialised states, including Andhra Pradesh, Karnataka, and Tamil Nadu," the report said, citing National Sample Survey Office surveys.
A well-developed infrastructure network, with good roads, railways, airports and new-age transportation systems such as the metro rail and water metro will make the state an attractive destination for businesses and individuals.
"The real estate sector in Kerala has been on an upswing across different asset classes. As one of the most literate and skilled states in India, Kerala provides ample opportunities for growth of the sector," said Najeeb Zackeria, chairman of the CREDAI Kerala state conference.
Sector challenges
However, there are constraints in developing real estate in Kerala, which has an area of 38,863 square km, accounting for a little over 1 percent of India’s land mass.
The report said about 70 percent of the land in Kerala is either under forest cover or classified as ecologically sensitive, including the Western Ghats, lakes, paddy land, backwaters, and wetlands. This leaves only a small portion available for real estate development.
"The Land Ceiling Act of Kerala prohibits any organisation from owning more than 15 acres of land, which makes it challenging to get land for significant projects. Additionally, the conversion of paddy land entails a hefty conversion fee of Rs 100 per square foot of the building's construction area plus 10 percent of the land's guidance value, which has an impact on the project's viability," the report said.
It suggested that the state needs to consider providing a higher floor-space index to boost vertical development that can maximise usability. To enable this, the state needs to provide infrastructure such as wider roads, larger metro corridors, and increased utility provisions. The floor-space index determines the area that can be built up on a plot of land.
"Currently, the state of Kerala has the one of highest stamp duty (8 percent) and registration charges (2 percent) when compared to many other states, thereby impacting the cost of asset acquisition. State government could look upon subsidising these charges," it added.
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