Tuesday, January 22, 2008

Are the rising property prices causing a social divide?

Authored by Sangeet H Kumar
CEO, ACBD Global Asset Corp

There is no denying to the fact that India has quite a high economic disparity (which is prevalent in most of the developing countries in the world) .The rich are getting richer and the poor are getting poorer is cliché’, and very much a reality in the New India. With luxury limited to a privileged few who drive a 7 Series BMW, own a villa in Mauritius, sport a one crore watch, wear a Solitaire and take a holiday to Europe as often as some holiday at a nearby hill station.

With the high property prices seen all across India, sometimes I wonder that added to the above, real-estate is soon becoming responsible for the growing social divide in our country. Coupled with the high property prices, we are witnessing luxurious projects being launched by developers that are obviously expensive. Penthouses and villas, with the best of designs, layouts and features like a private swimming pool have become order of the day.

Especially the middle class are getting crunched and as the property prices keep rising, definitely higher than the incremental income, they are left high and dry. I know a few of my clients who believe that they can never move to a new (read bigger) house. They repent that they could not take the right decision at the right time.

I would like to give a perfect example of 3 brothers who last year sold their family bungalow in a posh suburb of Mumbai. One of them bought a row house in a distant location for a 10% higher price that was prevalent in the market at that time. The client was grumbling that I had sold him an expensive deal. The second brother being a pessimist kept telling me that the market would see a correction and he would rather wait. He moved into a rental house and believed that he had taken a right decision. The third brother who lives in the US invested part of the money in business and now is in the process of picking up a new house.

In just a period of 12 to 14 months the row house today is worth 30 to 40% more than the purchase price. The brother, who believed that the property prices would fall, is still living in a rented house. (I just hope that his wife does not divorce him) The brother in the US is quite a happy man because I believe that the property in the US have taken a beating in the last one year or so.

Though my wife's single demand is that we should soon move to a new apartment, that too a terrace one (perhaps because her brother just bought a 4000 sq.ft. penthouse) I still consider myself privileged as I have a roof above my head.

Sangeet H Kumar

Contributed By : Sangeet H Kumar

Wednesday, January 2, 2008

The Property Boom In India to Continue in 2008

Authored by Sangeet H Kumar
CEO, ACBD Global Asset Corp

With property boom spreading in all directions, real estate in India is touching new heights and will continue to do so in 2008. The Indian real estate has huge demand potential in almost every sector, especially commercial, residential and retail.

Policy changes introduced by the Government allows for 100 per cent foreign investments in construction projects with fast-track approvals. But the real attraction for foreign investors is potential investment returns of 25 to 30 per cent and more in Indian projects that might be hard to come by in the US and in Western Europe today. With a growth rate of about 30 per cent and projected figures of 90 billion US dollars, by 2015, it can be safely said that the real estate sector in India is truly booming.

Robust economic growth, congenial environment/opportunity for buying property in India, 2010 hosting of the Common Wealth Games in Delhi along with the positive outlook of Indian government have been the key factors behind the sudden rise of the Indian Real Estate sector - the second largest employer after agriculture in India.

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 sudden jump in Indian real estate.

Growth in commercial office space requirement is led by the burgeoning outsourcing, retail and information technology (IT) industry.

One of the main propellers of this growth is also the rapid urbanisation of Indian cities. The Indian government has estimated a shortfall of 20 million accommodation units. This quantum of demand, coupled with a short supply, ensures that there's a great requirement for residential realty. This in turn translates into great opportunities for real estate companies providing quality township projects. Industry observers feel that this growth is facilitated by favourable demographics, increasing purchasing power, existence of customer-friendly banks and housing finance companies, professionalism in real estate and reforms initiated by the Government to attract global investors.

It is also estimated that India will need 475 billion dollars in the next five years to upgrade its infrastructure. This level of investment opportunity hasn't gone unnoticed by global investors and has drawn the heavy weight investors to India. But the real story lies in the deeper changes within Indian society that are expected to have an even greater impact on real estate. India has a young profile today. Half of its population is under 25 years and the country's median age is 24 years compared to 33 years in China and 43 years in Japan. The country is urbanising at a rapid rate of 2.5 per cent per year.

The number of cities over one million is expected to double from 35 in 2001 to 70 cities by 2025. Mumbai and Delhi is projected to be the world's second and third largest cities by 2015. Tier 2 cities like Pune, Hyderabad and Chennai are becoming increasingly important in this scenario. India's large population is now being viewed as one of its key strengths, especially a young and urbanising population.

The trend towards urbanisation is part of a long-term structural change in the Indian economy. Where now, less than 30 per cent of the population live in cities, that figure is expected to double by 2030.

More importantly, this young customer base has an ever-growing demand for products and services and is providing massive labour market opportunities as well.

This new brand of consumer's rising disposable incomes is also being generated towards lifestyle products, real estate included.

Sangeet H Kumar

Contributed By : Sangeet H Kumar