The Indian economy has transformed substantively over the last two decades, growing consistently at an average of 8% and is poised to take its place among the leading economies in the years to come. Strong performance of the economy can be particularly attributed to healthy growth in manufacturing and service sector. The economic performance of India has provided strong impetus to the real estate sector, which has been witnessing heightened activity in the recent years.
Substantial end user and investor interest, large scale investment in infrastructure and rapid urbanisation has contributed to the growth trajectory of Indian real estate. The real estate growth story is clearly visible in urban centres such as Delhi, Mumbai, Bengaluru which has acquired global character and recognition. The real estate sector in the country is one of great importance. According to the report of the Technical Group on Estimation of Housing Shortage, an estimated shortage of 26. 3 million houses during the Eleventh Five Year Plan (2007-12) provides a big investment opportunity. India leads the pack of top real estate investment markets in Asia for 2010, according to a study by PricewaterhouseCoopers (PwC) and Urban Land Institute, a global non-profit education and research institute, released in December 2009. The report, which provides an outlook on Asia-Pacific real estate investment and development trends, points out that India, in particular Mumbai and Delhi, are good real estate investment destinations.
Residential properties are viewed as more promising than other sectors. While, Mumbai, Delhi and Bengaluru top the pack in the hotel ‘buy’ prospects as well. The study is based on the opinions of over 270 international real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants. Further, real estate companies are coming up with various residential and commercial projects to fulfill the demand for residential and office properties in Tier-II and Tier-III cities.
For instance, Ansal Properties has several residential projects in cities such as Jodhpur, Ajmer, Jaipur, Panipat, Kundli and Agra. Omaxe has also planned around 40 residential and integrated township projects in Tier-II and Tier-III cities, majority of them being in Uttar Pradesh, Punjab, Madhya Pradesh, Rajasthan and Haryana. The growth in real estate in Tier-II and Tier-III cities is mainly due to increase in demand for organised realty and availability of land at affordable prices in these cities.
According to the data released by the Department of Industrial Policy and Promotion (DIPP), housing and real estate sector including cineplex, multiplex, integrated townships and commercial complexes etc, attracted a cumulative foreign direct investment (FDI) worth US$ 8. 4 billion from April 2000 to April 2010 wherein the sector witnessed FDI amounting US$ 2. 8 billion in the fiscal year 2009-10. INDIAN REAL ESTATE : RIDING THE GROWTH WAVE The strong fundamentals of Indian economy are having a favourable impact on all assets classes of Indian real estate viz housing, commercial-office space and retail and hospitality.
In recent years, the growth has spread out to tier two and three cities as well. High growth in services as well as manufacturing sector has resulted in high demand for commercial and industrial real estate. Further the economic growth has trickled down to the large Indian middle class increasing affordability and affluence. Improving living standards are driving the demand for better quality housing and urban infrastructure. In fact, housing in India is today moving for being viewed as a purely basic need to an aspirational purchase.
Through high interest rates, coupled with soaring property prices have temporarily impacted affordability of home buyers the demand-supply mismatch and low home loans to GDP ratio in India are expected to fuel demand for housing in medium long run. The growth of the sector has been complimented by favourable policy changes like liberalisation of FDI guidelines and significant increase in investment on physical infrastructure. Table 1 The recent times have also witnesses an evolution of sector – towards greater institutionalisation and corporatisatio.
With the entry of global players, inflow of foreign capital, evolution of capital markets, geographical diversification and introduction of reforms, the sector has undergone some significant structural changes. Even critical concerns areas like transparency in the sector is also improving. But trends is also expected to continue in coming years. MARKET – SIZE AND GROWTH Estimate provided by ASSOCHM, a leading industry body, suggest that the size of the Indian real estate sector is around us$ 16 billion, at the rate of 30% per annum.
According to recent estimate by UBS the total size of Indian real estae market in terms of total economic value of development activity, is US$ 40-45 billion representing 5-6 % of GDP. RUSH TO RAISE CAPITAL Last two years have been eventful years for the Indian real estate sector on capital market, with the IPO market witnessing the shifting focus towards the realty sector. In a bid to raise their capital base and fund ambitious project pipeline, the real estate companies approached both the domestic and International stock market.
Close to twenty real estate and construction companies opted for stock exchange listing since august 2006 to 2007. Cumulatively, these companies were able to raise around US$4356. 3 million from the public for various projects. Several prominent real estate players such as DLF, Parsavnath, Purvankara, Sobha came up with their public issues during the last 18 months. Another trend that seems to find favour with Indian realty developer is listing on the off-shore exchanges like AIM, Singapore listed REIT etc.
India’s largest real estate developer DLF’s group companies DLF assets has filed for REIT IPO in Singapore stock exchange. New Projects Private equity fund IL&FS Investment Managers (IIML) plans to invest US$ 300 million in real estate and urban infrastructure projects by the end of 2010. Godrej Group’s real estate company, Godrej Properties and Frontier Home Developers, plans to develop a residential project in Gurgaon. This would be the first residential project in the national capital region (NCR) for Godrej Properties.
Shristi Infrastructure Development Corporation will invest US$ 444. 7 million over the next three years in seven small cities in West Bengal, Tripura and Rajasthan. The money would be used to build integrated townships, healthcare facilities, hospitality and sports facilities, retail malls, logistics hubs and commercial and residential complexes. Realty major Ansal Properties ;amp; Infrastructure Ltd plans to invest about US$ 330. 8 million over the next three years on expansion of its existing integrated townships and to develop a group housing project in Haryana. | | Government Initiatives
The government has introduced many progressive measures to unlock the potential of the sector and also to meet the increasing demand levels. * 100 per cent FDI allowed in townships, housing, built-up infrastructure and construction development projects through the automatic route, subject to guidelines as prescribed by DIPP * 100 per cent FDI is allowed under the automatic route in development of Special Economic Zones (SEZ), subject to the provisions of Special Economic Zones Act 2005 and the SEZ Policy of the Department of Commerce * FDI is not allowed in Real Estate Business
In the Union Budget 2010-11, the Finance Minister made the following announcements with regard to the real estate sector: * Allocation for urban development was increased by more than 75 per cent from US$ 660. 3 million to US$ 1. 17 billion in 2010-11 * Allocation for housing and urban poverty alleviation was raised from US$ 183. 4 million to US$ 215. million in 2010-11 * Scheme of 1 per cent interest subvention on housing loan up to US$ 21,576 where the cost of the house does not exceed US$ 43,153 announced in the last budget has been extended up to March 31, 2011 and US$ 151 million has been earmarked for this scheme for 2010-11 * US$ 274 million has been allocated for Rajiv Awas Yojna, as compared to US$ 32. 4 million last year * Meanwhile, the Reserve Bank of India (RBI) has revised the norms for urban cooperative banks for giving loans to the housing and real estate (RE) segment.
Now, urban banks can use up to 15 per cent of deposits to provide housing, real estate and CRE loans. Earlier, the RBI norm permitted them to use up to 15 per cent of deposits for giving advances to housing loans and other block capital loans. Road Ahead According to the Confederation of Real Estate Developers’ Associations of India (CREDAI), the affordable housing segment is set to play an important role in India’s real estate sector in 2010 on the back of substantial demand. Affordable housing will be a key factor in driving the sector and we have already started working on progressive solutions in this area for effective and customised implementation of such projects,” Confederation of Real Estate Developers’ Associations of India (CREDAI) Chairman Kumar Gera said in January 2010. Moreover, 2010 is expected to be a positive year for the real estate sector. The revival is expected to be driven by infrastructure growth, which in turn, can accelerate real estate activities both in the residential as well as commercial spaces.