Real Estate
Activities in India
REAL ESTATE ACTIVITIES
- Real estate accounted for 4.4% of India’s GDP in 2010
and is the second-largest employer in the country after agriculture.
- The industry has seen an unprecedented boom in the last
few years of the review period. Total value of real estate transactions
hit INR3.4 trillion by 2010, after showing uninterrupted growth of an
average 13% per year since 2000.
- Firstly, this was fuelled by better living standards of
Indian households, as well as improved access to credit. Secondly, the
rapidly expanding commercial sector created a surge in demand for
office-buildings and dwellings. Thirdly, the liberalisation policies of
the government reduced the number permissions and licenses needed before
taking up construction projects.
- Easier access to bank loans and higher earnings were
some of the pivotal reasons behind the sudden jump in residential real
estate. The demand is particularly strong in Tier-II and Tier-III cities.
To meet this demand, Ansal Properties has started several residential
projects in Jodhpur, Ajmer, Jaipur, Panipat, Kundli and Agra. Omaxe has
also planned around 40 residential and integrated township projects in
Tier-II and Tier-III cities, the majority of them being in Uttar Pradesh,
Punjab, Madhya Pradesh, Rajasthan and Haryana.
- Property prices in India are touching new heights, with
strong variations in different cities. Prices range from INR4,200 per sq
ft in Hyderabad to INR42,000 in Mumbai. In most cities, real estate prices
jumped at least twice between 2004 and 2008, with some districts recording
triple or even stronger growth. The villages adjacent to the metro cities
also experienced sky-rocketing land prices. This induced farmers to sell
their land for good money.
- Individual clients generate the lion’s share of
industry revenue. As of end-2010, Indian households accounted for 93% of
all real estate transactions in the country in value terms.
Business-to-businesses contracts constituted less than 7% of total sales,
which is quite typical for developing countries, mostly because a large
share of commerce is still within the unorganised sector. On the contrary,
Western economies usually record significantly higher proportion of
industrial customers within the real estate client base. In the UK, for
example, business-to-business customers account for at least 30% of all
business value.
- However, the property rental trends in the commercial
sector are momentous, as the key tendency among the investors is to rent a
commercial space instead of buying. Commercial rentals including corporate
office space, BPO spaces, shopping centre space, shops and showrooms are
an integral part of the commercial rentals in India. Buying good space in
high quality development and leasing it to foreign investors is currently
considered a wise investment decision. Typically, commercial lease
agreements specify a 15% escalation in the real estate rental in every
three years.
- Opening the doors to foreign investments was another
step to make the industry flourish. The government has allowed FDI in real
estate since 2002. FDI was deemed necessary in the view of making the
sector more organised and increasing professionalism. Indeed, the
organised market in India is accelerating, with players like WalMart,
Bharti and Reliance stepping up the demand for real estate.
- Over the review period of 2000-2010, the revised investor-friendly
policies not only allowed foreigners to own property, but also dropped the
minimum size for housing estates built with foreign capital from 100 acres
to 25 acres. This, in turn, encouraged an increasing number of countries
to invest in Indian properties. India’s housing and real estate sector
attracted a cumulative foreign direct investment worth INR383 billion
(US$8.4 billion) from April 2000 to April 2010, wherein the sector
witnessed FDI amounting INR128 billion (US$ 2.8 billion) in the fiscal
year 2009-10.
- 2010-2016 are expected to be good years for real
estate, both in the residential and commercial spaces. Property companies
are planning a lot of new developments in the upcoming years. Shristi
Infrastructure Development Corporation, for example, is to invest INR20.3
billion (US$445 million) over the next three years in seven small cities
in West Bengal, Tripura and Rajasthan. The company plans to build
integrated townships, healthcare facilities, hospitality and sports
facilities, retail centres, logistics hubs and commercial and residential
complexes.
- Tata Housing is planning to launch 10 new residential
projects in both affordable and luxury segments in 2011, with an
investment of about INR12.3 billion (US$269 million). Vision India Real Estate
is to develop logistics parks in Bengaluru and Chennai, with an outlay of
INR5 billion (US$110 million). Realty major Ansal Properties &
Infrastructure plans to invest about INR15 billion (US$331 million) over
the first three years of the forecast period on expansion of its existing
integrated townships and to develop a group housing project in Haryana.
- Along with these new investment projects, further
developing country’s economy and improving living standards of Indian
households, total value of real estate transactions is expected to
increase by an average 15% per year in 2011-2016, to INR7.77 trillion by
the end of the forecast period.
