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.
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.
Contributed By : Sangeet H Kumar
4 comments:
Hey Sangeet I have a different view point, i believe the boom is no more, it has vanished and the property prices were being corrected few months back.the boom wasnt present in metros as it was 2-3 years back.Now since in present scenario the prices are down, we can expect investors pumping in huge sum of money all across the globe in the indian real estate, in order to raise the demand artificially.The market is really unpredictable, one has to be really cautious b4 trying his luck over .One should always consult experts,real estate professionals like Axiom Estates for gaining maximum out of their investment in real estate.Check - http://www.axiomestates.com
I was looking at impact of slowdown in the IT/BPO sectors in the last few quarters in India and consequent drop in the market cap of these companies.Since both commercial(office) realty as well as residential realty demand depends on growth and expansion of BPO/IT businesses apart from other factors,there can be 'corrections'and may be drop in demand in both these segments.If Re-$ exchange rates continue to drop,there will be added pressure on IT companies.
In the residential segments,pick- up in retail by end users in this festive season has been weak,and promoters are with unsold inventories/booking,delaying their fund deployment plans - this is true for North and the East.Last six months many of the promoters found large no of cancellations leading to refund pressures.Many top realty players are keeping on hold things like senior level recruitments and even land acquisition.Recent trend of many realty players diversifying to areas like telecom,education etc actually points out that there is slight drop in terms how they look at the long term potential of realty business vis-a-via what they have been making in the last few years.
Many promoters blames stock market boom and Mr Chidambaram for the interest rate which has effected the sentiment of both endusers and investors.
The sign of weaknesses are plenty and some of these are good for the industry.Steps like 'pay 15%,and pay EMI after possession'....are very good step to reach actual end users with 2/3 years of EMI holidays.These innovations are result of pressure in the market,and I donot see situation easing unless there is some drastic policy changes say like drop in interest rates.However there are still lot of opportunites to make money in real estate and big ticket investments should continue to follow from outside.
Hi Sangeet,
I agree with you in long term but if we talk about the scenario in short term, projections do not look too promising. However looking at the term these organized built-up residential communities are definitely going to increase. Figures says that there is going to be 5 times increase. Not sure about the scene in 2008.
I would totally agree with sangeet, the real estate and infrastructure outlook for India is bright, and the growth in the sector has just started.
One need not forget that real estate has always been a long term play, and who ever has made wind fall in the short term, it has been purely by luck.
All the foreign and NRI investors that are putting in money or are looking at these investments with a docus of 3-5 years.
It goes without saying people investing money in real estate for that matter any financial product requires professional consultancy, which has been more less non-existent in case of Indian scenario.
I would strongly disagree with Nikhil, because the market is definately unpredictable and the prices are definately not coming down in metros, in places like bombay and new delhi, residential as well as commercial is booming and as always it would eventually start having a ripple effect in adjacent and upcoming locations close to the metros.
I believe with regards to IT/BPO, KPO business it is just a phase that the industry is going through and I am sure the domestic market for this industry is going to pitch in big time to support growth attributable to IT/ITES.
Consumerism and retail has just started and miles to go.
Though housing for lower and middle segment has to be looked at by the builders and government. This is one area which has been overlooked for quite some time now and would go in long term for the growth and satisfaction of the country.
Varun Arya
Senior Advisor
Home Land Trade
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