The size of the real estate industry in India is estimated by FICCI, to be around US$ 12 billion. This figure is growing at a pace of 30% for the last few years. Almost 80 % of real estate developed in India, is residential space and the rest comprise office, shopping malls, hotels and hospitals. This double-digit growth is mainly attributed to the off-shoring business, including high-end technology consulting, call centers and software programming houses which in 2003-04, is estimated to have accounted for more than 10 million square feet of real estate development. This is the ideal time to invest in the country as policy makers have begun to emphasize on developing adequate infrastructure for the country. Real estate companies would also do well to maximize their own performance and operational efficiency.
For every Indian rupee invested in the construction of houses in India, INR 0.78 is added to the gross domestic product. The real estate sector is also subservient to the development of over 250 other ancillary industries. A study by a rating agency ICRA shows that the construction industry ranks 3rd among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. After agriculture, the real estate sector is the second largest employment generator inIndia.
The sustained demand from the Information Technology sector also affected the urban landscape in India. As per estimates, there is demand for 66 million square feet of IT space over the next five years. Several multinational companies continue to move their operations to India to take advantage of lower costs of skilled manpower and logistics. With human resources being the key element in this industry, the hiring and housing of people, both at their work place and home assume great importance and therefore the need to create space for people to work and live, which in turn triggers the development of other related infrastructure.
The predominant trend has been to set up world-class business centers, often campus-style establishments, bearing a distinctive corporate stamp. So distinct are some of these locations that they are being termed as the "temples of modern India" by the local press. This is just an indication of the extent of real estate development taking place. Indian and international real estate majors also envisage a major boom in the hotel project developments over the next five years. During the last five years, major chains such as the Orchid, Marriott, Holiday Inn, etc. have either tied up with local developers of property or they have started planning for their own real estate.
Though the real estate sector in India is proclaimed to be the most promising sector today, it is still hugely plagued by market uncertainties and inhibitions. This is manifested by an abysmally low mortgage penetration. In India the mortgage to GDP ratio is about 2%. This compares to a mortgage to GDP ratio of over 51% in USA. However, even if one were to benchmark with more comparable counterparts, the ratio ranges between 15-20% for South East Asian countries. Thus the penetration level of mortgages is miniscule when compared with the shortage of housing units. The real estate market in India predominantly continues to remain unorganized, fairly fragmented, mostly characterized by small players with a local presence.
Foreign Direct Investment (FDI) in Real EstateThe decision to liberalise the FDI norms in the construction sector is perhaps the most significant economic policy decision taken by the Union Government. Until now, only Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) were permitted to invest in the housing and the real estate sectors. Foreign investors other than NRIs were allowed to invest only in development of integrated townships and settlements either through a wholly owned subsidiary or through a joint venture company in India along with a local partner. However, the guidelines prescribed via Press Note 2 (2005) series issued by Ministry of Commerce & Industry, have further opened out FDI in townships, housing, built-up infrastructure and construction-development projects. Major conglomerates are taking initiative and are wooing internationals firms in order to line up investments for major projects.
Mr. Rahul Singh is a B.Tech (Electronics) fom IIT Roorkee. He did his MBA from Kelly School of Business, Indiana University in 2008. He worked as a developer and a project lead at Support Soft India (Aug 2004-June 2008), a small software firm, where he was instrumental in establishing a critical product vertical within the firm. He also spent two years at Infosys between 2002 and 2004. He also worked as a Business Strategy intern (May 2007-Aug 2007) at Wetpaint.com Inc. in Seattle and gained significant experience in managing strategy and operations at a start-up.