The Indian economy has experienced robust growth in the past decade and is expected to be one of the fastest growing economies in the coming years. The real estate sector in India assumed greater prominence with the liberalisation of the economy, as the consequent increase in business opportunities and labour migration led to rising demand for commercial and housing space. At present, the real estate and construction sectors are playing a crucial role in the overall development of India's core infrastructure. 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 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. The industry's growth is linked to developments in the retail, hospitality and entertainment (hotels, resorts, cinema theatres) sectors, economic services (hospitals, schools) and information technology (IT)-enabled services (like call centres) etc and vice-versa.
The sector is divided into four sub-sectors:
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 Indian real estate market size is expected to touch US$ 180 billion by 2020.
Demand for residential, commercial and retail real estate is rising throughout India, accompanied by increased demand for hotel accommodation and improved infrastructure. Demand is expected to grow at a compound annual growth rate (CAGR) of 19 per cent between 2010 and 2014 and Tier 1 metropolitan cities are expected to account for about 40 per cent of this.
Growth prospects and price stability of smaller cities are attracting large real-estate developers in such cities in the recent past, according to a report titled 'Real(i)ty Next: Beyond the Top 10 Cities of India', released by Crisil Research in June 2011. The report estimates that the sale of new residential apartments in 10 such smaller cities are at around US$ 4 billion in 2012.
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.
Presence of a large number of Fortune 500 and other reputed companies and expertise in sectors such as auto-components, chemicals, apparels, pharmaceuticals and jewellery, where India can match the best in the world will definitely attract more foreign investors in the near future.
- Construction development sector (including townships, housing, built-up infrastructure & construction-development projects) has attracted a cumulative foreign direct investment (FDI) worth US$ 21,953.51 million from April 2000 to January 2013, according to the Department of Industrial Policy and Promotion (DIPP)
- FDI flows into the construction sector for the period April-January 2012-13 stood at US$ 1,206 million, according to the DIPP
India needs to invest US$ 1.2 trillion over next 20 years to modernise urban infrastructure and keep pace with the growing urbanisation, as per a report released by McKinsey Global Institute (MGI)-India's urban awakening.
Private Equity (PE) in real estate projects will fetch considerable returns by next year-end or early 2013, says Vikram Hosangady, partner, KPMG. "Limited partners (who write cheque for funds) expect 15-25% returns from real estate deals. Foreign investors are optimistic about India. All they want is prompt action and friendly policies," he says.
Indian realtors participated in an India Property show in Singapore. The show was organised to attract Indian diaspora living in Singapore to invest into India's booming real estate market. "The appreciation of the Singapore dollar, the Comprehensive Economic Cooperation Agreement and the RBI's liberalised policies are all progressive steps for expats, NRIs and Singaporeans to invest in India's booming real estate market," said Mr R Dhinakaran, nominated Member of Parliament and vice-president, Institute of Certified Public Accountants of Singapore.
The branded furniture, ceramic tiles and durables firms etc are chalking out expansion plans for tier II towns, which continue to grow at a steady pace. "The spending power in the customers' hands in tier II & tier III geographies has also increased over the last 5-6 years which offers a great potential to tap for a large size of their wallet," as per R Kurup, Chief Marketing Officer, H&R Johnson.
Investment Policy Updates
The Reserve Bank of India (RBI) has granted permission to foreign citizens of Indian origin to purchase property in India for residential or commercial purposes. The purchase consideration should be met either out of inward remittances in foreign exchange through normal banking channels or out of funds from non-resident external (NRE)/ foreign currency non-resident (FCNR) accounts maintained with a bank in India.
According to the latest reforms:
- 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 to increase investment, generate economic activity, create new employment opportunities and add to the available housing stock and built-up infrastructure (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure) is allowed subject to the following guidelines (also for investment by NRIs)
- For homes and flats with a carpet area of 2,000 sq ft or more or of a value of Rs 1 crore or more, which are high-end constructions, where the component of services is greater, rate of abatement reduced from 75 to 70 percent in the Union Budget 2013-14
- In the Budget 2013-14 Rs 6,000 crore were given to Rural Housing Fund
- National Housing Bank plans to set up Urban Housing Fund. Rs 2,000 crore will be provided to the fund in 2013-14
Sources: Consolidated FDI Policy Department of Industrial Policy and Promotion (DIPP), CII Real Estate Whitepaper and Ministry of Housing & Urban Poverty Alleviation
...we are seeing a lot of investment in real estate. We do like real estate as a sector, we think there is value in selective companies and it is based on their land bank and where it is located
Kotak Investment Bank
Mahindra Lifespace Developers has bought the stake of private equity Arch Capital in its joint venture (JV) residential project at Chennai. The buyout of the stake was estimated to be around Rs 70 crore (US$ 12.89 million).
Wave Infratech plans to invest Rs 500 crore (US$ 91.77 million) to set up its first affordable housing venture in the Delhi national capital region (NCR) area.
Godrej Properties has launched a major commercial project at the Bandra Kurla Complex, Mumbai. The project, Godrej BKC, is expected to generate Rs 3,500 crore (US$ 640.32 million)-Rs 4,000 crore (US$ 732.03 million) for the company.
Eight memorandums of understanding (MoUs) worth Rs 1.34 trillion (US$ 24.49 billion) in the affordable housing and construction industry were signed by both domestic and global players.
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