With increasing globalization and supporting policies of the Indian government, Real estate in India has attracted a huge attention globally from investors and developers. With a contribution of around 6.3%to the GDP of the country, it stands second in employment generation. Research shows that in the next one decade, the sector may touch US$ 25 billion FDI from the present US$ 4 billion. This huge investment many be attributed to the factors like increasing income of the people, increasing urbanization, migration to urban areas, infrastructure development, trend of nuclear families and increasing housing demands. It is also estimated that with these high investment inflows the annual revenues by 2020 may increase to US$ 180 billion.
Dynamics of the market by 2020:
With investor friendly government policies and easy availability of bank loans, increased income and increased living conditions of the people, the real estate which is limited to urban areas once is progressing into smaller towns. The sector has seen development in many areas like industrial, commercial and residential areas.
The sector is estimated to have a compound annual growth rate of 11.6 % in its annual revenues which projects to US$ 180 billion by 2020 from the current US$ 66.8 billion. This may be attributed to huge growth of CAGR (19%) in the tier-1 cities because of their large overall growth of 40%. At present, these cities have around 50% demand for commercial areas in the country. The trend may extend to other tier-2 cities in the near future.
In mall supply demands, Delhi-NCR alone contributes for 30% of country's demands. With other top cities considered, they all are estimated stand for around 53% in the next one year.
The real estate sector is estimated to have an year-on-year growth of 15% in the next 4-5 years as compared to an estimated 12-13% GDP growth. This may result in overall growth to US$ 544.73 billion by 2020.
As per the report of Knight Frank India, a real estate consultancy, office stock is estimated to rise by 40 per cent to 642.2 million sq ft by 2020. This is because of the competitive process offered by the Indian market in the Asia- pacific region. According to the report, the cities in the country may also have speedy rental growths maintaining its competitive prices simultaneously.
The luxury retail space contributes for around 1.4% by this period as per the report by Wakefield & Cushman. The metropolitan cities of Mumbai and Delhi continue to be desired destinations for the luxury retailers.
The Indian population is estimated to become 1.38 billion by 2020 with 36% of the population living in urban areas. This population may demand more for real estate and quality infrastructure. Around 95 billion sq.ft of land may be required in all civil engineering works by 2020. This requires building of around 8.7 billion sq.ft land every year. Accordingly around 123 million people look for professionals to help in building. An estimate of around 4 million civil engineers, 400,000 architects and 120,000 planners are required in the coming years.
Few investments in the country that contribute majorly to the real estate sector by 2020 are listed below:
' Godrej Properties Ltd has planned to invest in 15 projects across the country by 20202 with an amount around US$ 1.44 billion.
' Aon Hewitt, a multinational human resource firm has leased around 800,000 sq ft of land to develop an estimated US$ 128.17 million IT Special Economic Zones from Unitech Ltd.
' Stakes of around US$ 100 million are brought in special purpose vehicle, Pune by NRI. This is used for developing World Trade Centre and Trump Towers in the city.
' Infrastructure Leasing & Financial Services (IL&FS) Ltd has signed for a work costing US$ 39.17 million from Emaar MGF for developing residential areas in Gurgaon.
' Accor group, known for its luxury hotel chain Sofitel is planning to start around 10 new business areas across the country.
' Otis, US based world class manufacturer of elevators is planning to expand its operations in Indian market. The company works with Delhi and Hyderabad metros who have placed an order of around 200 escalators with the company.
Government implemented strategies:
The current FDI policy in the country allows a full percent in the construction development sector. The Department of Industrial Policy and Promotion (DIPP) is also planning to reduce other norms in FDI so as to draw more investments into the sector. One such initiative is reduction of minimum capital for wholly owned subsidiaries from US$ 10 million to US$ 5 million and for joint venture with Indians from US$ 5 million to US$ 2.5 million.
The Ministry of Housing and Urban Poverty Alleviation (MHUPA) has also taken initiatives in this direction by providing housing facilities to the urban poor. By its flagship program Jawaharlal Nehru National Urban Renewal Mission (JNNURM), the ministry is able to effectively implement this initiative in many cities across.
The union cabinet has approved a bill in 2013 called Real Estate (Regulation and Development) Bill to make the regulatory authority efficient in this sector. Accordingly the disputes are given quick verdicts and to make a systematic growth in the industry.
As per the report 'India's urban awakening' by McKinsey Global Institute (MGI) the country needs an investment of around US$ 1.2 trillion in the next two decades to keep up with the increasing urbanization and globalization.
With increase in population, the demand for space for health and education sectors has also been on rise. The increasing number of foreign travelers into the country due to development of tourism industry increased demand for service apartments. This demand is estimated to increase around 50000 new rooms in the coming years in all major tourist destinations.
India's real estate market is still in its initial stages and there is a huge potential for development. The market estimates also show no near bubble burst. It shows an unrestricted growth for atleast next two decades. It is because the outsourcing business has expanded a lot leading to huge demand for urban houses and commercial buildings. The increased share of retail market with big players like Walmart, Reliance, Bharati created more demand for real estate. To continue this growth, the Government must make sure that is has adequate funds to promote industries which create value to the sector. The Government should also ease the tax laws and other rules to developing areas like Special Economic Zones (SEZs) and industrial parks. A stable political scenario may also be essential for foreign investors to make an effective use of FDI.
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