Real Estate Sector

Real estate sector in India is witnessing tremendous boom. Real estate industry in India is presently worth $12 billion and is growing at the rate of 30 per cent per annum. The importance of real estate sector in India can be gauged from the fact that it is the second largest employer next only to agriculture. The real estate industry has significant linkages with several other sectors of the economy and over 250 associated industries. According to a study One Rupee invested in real estate sector results in 78 paise being added to the GDP of the country.

Eighty percent share of the real estate market is garnered by residential sector and the rest is comprised of offices, shopping malls, hotels and hospitals. The sustained demand from the Information Technology (IT) sector has fuelled the growth of real estate sector. It has been estimated that the demand for IT space would be 66 million square feet over the next five years. Several multinational companies are shifting their operations to India to take advantage of the relatively low costs. With human resources being the key element in this industry, hiring people and housing them assume great importance. The need to create space for people to work and live triggers the development of other related infrastructure.

Traditionally, the government's support to housing had been centralized and directed through the State Housing Boards and development authorities. In 1970, the Government of India set up the Housing and Urban Development Corporation (HUDCO) to finance housing and urban infrastructure activities. In 2002, the government permitted 100 per cent foreign direct investment (FDI) in housing through integrated township development. However, FDI rules at the moment are quite stringent. For FDI in real estate prior approval of the Foreign Investment Promotion Board is required, which, can be rather tedious and there is a lock-in period for repatriation of the original capital invested for a period of three years. On the top of it the rules stipulate a minimum land holding of 100 acres. Getting 100 acres of free land in an urban area is almost impossible. Hence the permission of FDI in real estate hasn't had the desired effect.

The boom in retail industry has also spurred the growth in real estate sector. India at the moment is witnessing a spurt in extremely large retail spaces. Shopping malls with over 1 million sq ft of space have become the order of the day. As the competition in the market intensifies, builders are going out of their way to be different. Specialized malls, designer brands and multi-movie options are the order of the day. With the big players like Reliance, Big Bazaar, and Bharti entering retail market, real estate sector would be the big beneficiary.

The prospects for real estate industry in India looks buoyant. All the factors which contributed to the growth of real estate sector-high disposable incomes, sharp increase in global liquidity, selective capital account liberalization, looser credit policies, a greater availability of leverage due to financial liberalization and a consequent increase in mortgage lending and price increases-look set to continue.

Note: The above information was last updated on 21-07-2007