Thrive & Bust of Indian Real Estate Sector
Engulfing the time of stagnation, the evolution of Indian real estate arena has been phenomenal, impelled by, growing economy, conducive demographics and liberalized foreign direct investment regime. However , this unceasing phenomenon of real estate sector has started to exhibit the exact signs of contraction.
What can be the reasons of such a direction in this sector and what future course it will take? This article attempts to find answers to these questions…
Overview of Indian real estate sector
Since 2004-05 Indian reality sector has tremendous advancement. Registering a growth rate of, 35 per cent the real estate sector is estimated to be worth US$ 15 billion and anticipated to grow at the rate of 30 percent annually over the next decade, attracting foreign investments truly worth US$ 30 billion, with a number of IT parks in addition to residential townships being constructed across-India.
The term real estate ranges residential housing, commercial offices and trading spaces like theaters, hotels and restaurants, retail outlets, industrial buildings for instance factories and government buildings. Real estate involves purchase sale plus development of land, residential and nonresidential buildings. The activities connected with real estate sector embrace the hosing and construction field also.
The sector accounts for major source of employment new release in the country, being the second largest employer, next to agriculture. The exact sector has backward and forward linkages with about 250 ancilary industries such as cement, brick, steel, building material and so forth
Therefore a unit increase in expenditure of this sector have multiplier effect and capacity to generate income as high as five times.
In real estate sector major component comprises of housing which in turn accounts for 80% and is growing at the rate of 35%. Remainder consist of commercial segments office, shopping malls, hotels and even hospitals.
o Housing units: With the Indian economy surging at the rate of 9 % accompanied by rising profits levels of middle class, growing nuclear families, low interest rates, present day approach towards homeownership and change in the attitude with young working class in terms of from save and buy to order and repay having contributed towards soaring housing request.
Earlier cost of houses used to be in multiple of virtually 20 times the annual income of the buyers, whereas now multiple is less than 4. 5 times.
According to 11th five year or so plan, the housing shortage on
2007 was 25. 71 million and total requirement of housing during (2007-2012) will
be 26. 53 million. The total fund requirement during the urban housing sector
for 11th five year package is estimated to be Rs 361318 crores.
The brief summary of investment requirements for XI plan is portrayed in following table
SCENARIO Investment requirement
Housing dearth at the beginning of the XI plan period 147195. 0
Innovative additions to the housing stock during the XI plan phase including the additional housing shortage during the plan period 214123. 1
Total housing requirement for the plan period 361318. you
o Office premises: rapid growth of Indian economy, in unison also have deluging effect on the demand of Alpha 14 Property Group property to help in order to reach the needs of business. Growth in commercial office space condition is led by the burgeoning outsourcing and information technology (IT) industry and organised retail. For example , IT and ITES alone is estimated to require 150 million sqft across urban India by 2010. Similarly, the methodized retail industry is likely to require an additional 220 million sqft by 2010.
o Shopping malls: over the past ten years urbanization includes upsurge at the CAGR of 2%. With the growth of program sector which has not only pushed up the disposable incomes for urban population but has also become more brand conscious. When we go by numbers Indian retail industry is estimated to generally be about US $ 350 bn and forecast to be 2x by 2015.
Thus rosining income levels and switching perception towards branded goods will lead to higher demand for shopping mall space, encompassing strong growth prospects in shoe store development activities.
- o Multiplexes: another growth driver pertaining to real-estate sector is growing demand for multiplexes. The higher growth is often witnessed due to following factors:
- 1 . Multiplexes comprises of 250-400 seats per screen as against 800-1000 seats a single screen theater, which give multiplex owners additional gain, enabling them to optimize capacity utilization.
- 2 . Apart from most of these non-ticket revenues like food and beverages and the leasing about excess space to retailer provides excess revenues that will theatre developers.
- o Hotels/Resorts: as already mentioned above that mounting major boom in real estate sector is due to rising revenue of middle class. Therefore with increase in income tendency to spend part of their income on tours and trip is also going up, which in turn leads to higher demand for hotels together with resorts across the country. Apart from this India is also emerging as big destination for global tourism in India which is pushing the actual demand hotels/resorts.
- Path set by the government