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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. During 2010-11, the Indian real estate and
housing sectors received US$ 1.12 billion in foreign direct investment (FDI), according to the Department of
Industrial Policy and Promotion India (DIPP). FDI in the real estate sector is expected to witness an increase of
US$ 21 billion from the current values over the next 10 years. (Source: Indian Brand Equity Foundation,
www.ibef.org
).
Net sales of the real estate industry shot up by 78.3% in the June 2010 quarter. The PBDIT of the industry grew
by a robust 72.3%. The growth in PAT was even better at 119%. Almost 80% of real estate developed in India
is residential space, the rest comprising of offices, shopping malls, hotels and hospitals. According to the Tenth
Five Year Plan of India, there is a shortage of 22.4 million dwelling units. (Source:
CMIE
-September 2010
).
Government Initiatives
The Government of India has introduced many progressive reform measures to unlock the potential of the sector
and also meet 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.
•
Raising the limit on housing loans eligible for a 1 per cent subsidy in interest rates.
•
Widening the scope for housing under "priority-sector lending" for banks, making
interest rates cheaper on them.
(Source:
www.ibef.org
)
Key Characteristics of Indian Real Estate Sector
The Indian real estate sector has traditionally been dominated by a number of small regional players with
relatively low levels of expertise and/or financial resources. This has changed with the recent growth in the
sector and reflects consumer's expectations of increased quality as India becomes more closely integrated with
the global economy.
(Source: - The Real Estate Sector, India story, ABN Amro Bank)
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Key Segments of Indian Real Estate Sector
Residential Development
The residential segment consists of the development of apartments, houses and plotted developments in urban
and rural areas. According to Cushman and Wakefield Research, demand for residential space is estimated to
grow to over 7.5 million units by 2013 across all categories. At present approximately 307 million Indians live
in nearly 3,700 towns and cities spread across the country. This represents 30.5% of its population, in contrast
to only 15% (60 million) who lived in urban areas in 1947 when the country achieved independence. Over the
past 50 years, the population of India has grown two and half times, while urban India has grown by nearly five
times.
The residential demand for India’s seven major cities (these being Bengaluru, Chennai, Hyderabad, Kolkata,
Mumbai, the NCR and Pune) is estimated to be 4.5 million units by 2013. Of the total expected demand across
India, 43% is likely to be generated in Tier I cities, such as Bengaluru, Mumbai and the NCR. Mumbai is
expected to witness the highest cumulative demand of 1.6 million units by 2013. The affordable and mid
segment category is likely to constitute 85% of the total residential demand and will be the primary focus for
the majority of developers. (Source: Cushman and Wakefield, Survival to Revival, 2009).
The growth in the residential real estate market in India has been largely driven by rising disposable incomes,
rapidly growing middle class, youth population, low interest rates, and fiscal incentives on both interest and
principal payments for housing loans, heightened customer expectations, and increased urbanization.
Demand in the Indian residential segment has consistently outpaced supply as a result of India’s Favourable
Demographics, which has led to a housing shortage. The graph below illustrates the projected housing shortage
in India over the coming years as a result of this demand-supply mismatch. Immediate housing shortage is
caused by oversupply in the premium segment and a substantial shortage in affordable housing for mid-income
and low income households, meaning that supply does not cater to where the potential demand lies.
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(Source: Cushman and Wakefield, Survival to Revival, 2009).
The key demand drivers in the residential segment are summarized below:
a.
Rising Disposable Incomes and Trend towards ownership – India’s Economic growth has led to increase in
Disposable Income, which in turn has enhanced the aspirations to own homes.
b.
Rapid urbanization - Urban population expected to touch 590 million by 2030. India has witnessed
increasing urbanization, with the urban population increasing from 18% of total population in 1961 to
approximately 28% of total population by 2001. (Source: India Census)
c.
Shrinking household size - Average increase in number of nuclear families estimated to be over 300 million
(middle class population)
d.
Number of rich household growing at a compound annual growth rate ("CAGR") of 21%
e.
Increasing working age population (almost 64% in 16-64 age group)
f.
Fiscal Incentives and Easy availability of Housing finance.
g.
Shortage of Affordable housing.
Commercial/Office Space Development
Commercial development comprises of construction of office space, hotels, hospitals, schools, stadiums and
other similar structures. In India, most of the investment in this segment is driven by office space construction,
and the key demand drivers for this construction include economic sectors such as business services
(particularly IT/ITES), banking and financial services, FMCG and telecom.
Downturn in the commercial real estate market in India, which had commenced during the second half of 2008,
continued during the second half of 2009. The sustained decline was largely the result of postponement of
expansion plans by corporate, which adversely impacted demand for office space. IT/ITeS, which had been a
major demand driver for the sector in the last 2 years, increased utilization rates of existing commercial space
by increasing the number of shifts. The resultant drop in demand for commercial office space led to correction
of lease rentals in the range of 25-50% since the peaks touched during the first half of 2008.
The commercial market is showing signs of recovery since the second half of 2009. This growth can be
attributed to favorable demographics, increasing purchasing power, existence of customer friendly banks and
housing finance companies, professionalism in real estate and favorable reforms initiated by the government to
attract global investors. The leasing activity has gained momentum and there is a rise in the buy-out of office
space too. However, occupancy levels have still not seen a full-fledged recovery as seen in 2007-08. The
commercial space is facing excess supply and even if the revival in demand sustains, it will take at least a year
for the supply-demand gap to narrow. (Source: CMIE-September 2010).
Cushman and Wakefield's research estimates that demand for commercial office space will be 196 million sq. ft.
by 2013, with seven major cities, including Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, NCR and Pune
accounting for approximately 80% of the demand. Established commercial centres are expected to remain
slower in growth than their tier 2 counterparts. Cumulative demand among the tier 1 cities of Mumbai, NCR
and Bangalore will account for 42% of total demand, with Mumbai and NCR accounting for 24 and 25 million
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