16-10-2012, 05:51 PM
Real Estate
Introduction
Real estate plays a critical role in the development of the Indian economy. It is the second largest employer after agriculture. Over the next decade, the real estate sector is expected to grow by 30 per cent.
The sector is divided into four sub-sectors: housing, retail, hospitality, and commercial. The housing sub-sector contributes five-six per cent to the country's gross domestic product (GDP). Meanwhile, retail, hospitality and commercial real estate are also growing significantly, catering to India's growing needs of infrastructure.
The construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy, according to a study done by ICRA. A unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as five times. The positive effects of growth in real estate sector are spread over more than 250 ancillary industries.
Market Size
The Indian real estate market size is expected to touch US$ 180 billion by 2020.
Recent growth in the Indian economy has stimulated demand for land and developed real estate across industries. Demand for residential, commercial and retail real estate is rising throughout India, accompanied by increased demand for hotel accommodation and improved infrastructure.
India is going to produce an estimated 2 million new graduates from various Indian universities during this year, creating demand for 100 million square feet of office and industrial space.
Further, presence of a large number of Fortune 500 and other reputed companies will attract more companies to initiate their operational bases in India thus, creating more demand for corporate space.
Apart from IT, ITES and Business Process Outsourcing (BPO), India has shown its expertise in sectors like auto-components, chemicals, apparels, pharmaceuticals and jewellery where it can match the best in the world. These positive attributes of India is definitely going to attract more foreign investors in the near future.
Investments
Real estate emerged as the popular sector for private equity (PE) funds investing around US$ 1,700 million in this sector during 2011. PE in real estate projects will fetch considerable returns by next year-end or early 2013, according to Vikram Hosangady, Partner, KPMG.
Foreign direct investment (FDI) inflows in real estate in 2011-12 (April-January) stood at Rs 2,750 crore (US$ 492.50 million).
Major Investments:
• Mahindra Lifespaces, known for its World City projects in Chennai and Jaipur, is finalising land parcels in Maharashtra and Tamil Nadu. "We have got a go-ahead from the management and appointed architects. We are in the process of getting the land within the company by next month," said Anita Arjundas, Managing Director and Chief Executive Officer (CEO) of the company
• Delhi-based real estate player Assotech Realty has said it will take pan-India stride by opening serviced residence in 25 major cities across India. The company said it will invest Rs 250 crore (US$ 44.69 million) in its upcoming project on the Noida Expressway. The project will be funded partly through debt and partly through internal accruals
• Sahara India has set up a construction joint venture with 110-year-old American real estate company Turner Construction Co, a subsidiary of German construction group Hochtief, and the Acropolis Capital Group, a special situation investment and development firm. The JV company, Sahara Turner Construction, will build integrated townships called Sahara City Homes and other Sahara India projects in India worth US$ 25 billion over the next 20 years. Projects worth US$ 2.5 billion will be completed over the next five years
Government Initiatives/Policies
This budding sector is today witnessing development in all area such as - residential, retail and commercial - in metros of India such as Mumbai, Delhi & NCR, Kolkata and Chennai. Easier access to bank loans and higher earnings are some of the pivotal reasons behind the growing Indian real estate sector.
With a view to catalysing investment in townships, housing, built-up infrastructure and construction development projects as an instrument to generate economic activity, create new employment opportunities and add to the available housing stock and built-up infrastructure, the Government of India has decided to allow FDI up to 100 per cent under the automatic route in townships, housing, built-up infrastructure and construction development projects.
Union Budget 2012-13 gives major thrust on accelerating the pace of investment in infrastructure, as this is critical for sustaining and accelerating an overall growth. Efforts to attract private investment into infrastructure through the Public-Private Partnership (PPP) route have met with considerable success at both Central Government and State Government levels.
In the Union Budget 2012-13, Rs 10,000 crore (US$ 1.79 billion) is allocated for the development of National Highways. In the next five years, the total investments in the real estate will be US$ 1 trillion.
Road Ahead
The real estate sector in India is ready to take a big leap in the coming years. Since 2010, the residential sector has been on a strong growth trajectory and with increasing urbanisation the momentum is expected to continue. Strong demographic mix and increasing salary levels will be the key triggers for growth of the residential market in 2012. Salaried individuals in the age group of 30 to 35 years will emerge as the biggest contributors for demand in the residential category. This category of buyers has in past also been the main contributor to the growth of residential category. It is expected that by 2012, about 0.17 million units of supply will be available in the six major cities across India. Of this unit supply, tier I cities such as Chennai, Mumbai, Gurgaon and Kolkata accounts for 66 per cent of the supply, while the remaining 34 per cent is accounted by tier II cities such as Bengaluru and Hyderabad.
During the same period, it has been observed that Gurgaon and Kolkata are expected to have the maximum absorption trend. Also, about 75 per cent of the total unit supply in 2012 will be accounted by 2 bedroom-hall-kitchen (BHK) and 3 BHK units. During the realty boom, a higher composition of 4 BHK and other premium segments are usually expected; however, developers are conscious of the importance of smaller units in generating higher volumes and continuity in sales pattern.
Exchange rate used INR 1= US$ 0.0179 as on May 23, 2012
References: Ministry of Finance, Press Information Bureau (PIB), Media Report, Department of Industrial Policy and Promotion (DIPP), CREDAI