|The Indian real estate sector has witnessed a revolution, driven by the booming economy, favourable demographics and liberalised foreign direct investment (FDI) regime. Growing at a scorching 30 per cent, it has emerged as one of the most appealing investment areas for domestic as well as foreign investors.|
The second largest employing sector in India (including construction and facilities management), real estate is linked to about 250 ancillary industries like cement, brick and steel through backward and forward linkages. Consequently, a unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as five times.
Rising income levels of a growing middle class along with increase in nuclear families, low interest rates, modern attitudes to home ownership (the average age of a new homeowner in 2006 was 32 years compared with 45 years a decade ago) and a change of attitude amongst the young working population from that of 'save and buy' to 'buy and repay' have all combined to boost housing demand.
According to 'Housing Skyline of India 2007-08', a study by research firm, Indicus Analytics, there will be demand for over 24.3 million new dwellings for self-living in urban India alone by 2015. Consequently, this segment is likely to throw huge investment opportunities. In fact, an estimated US$ 25 billion investment will be required over the next five years in urban housing, says a report by Merrill Lynch.
Simultaneously, the rapid growth of the Indian economy has had a cascading effect on demand for commercial property to help meet the needs of business, such as modern offices, warehouses, hotels and retail shopping centres.
Growth in commercial office space requirement 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 organised retail industry is likely to require an additional 220 million sqft by 2010.
With the significant investment opportunities emerging in this industry, a large number of international real estate players have entered the country. Currently, foreign direct investment (FDI) inflows into the sector are estimated to be between US$ 5 billion and US$ 5.50 billion.
Jones Lang LaSalle (JLL), the world's leading integrated global real estate services and money management firm, plans to invest around US$ 1 billion in the country's burgeoning property market.
Dubai-based DAMAC Properties would invest up to US$ 4.5 billion to develop properties in India.
Merrill Lynch & Co bought 49 per cent equity in seven mid-income housing projects of India's largest real estate developer DLF in Chennai, Bangalore, Kochi and Indore for US$ 375.98 million.
UAE-based real estate company Rakeen and Chennai-based mineral firm Trimex Group have formed joint venture company - Rakindo Developers - which would invest over US$ 5 billion over the next five years.
Dubai-based Nakheel and Hines of the US have tied up with DLF to develop properties in India. DLF has also formed a joint venture with Limitless Holding, a part of Dubai World, to develop a US$ 15.23 billion township project in Karnataka.
Gulf Finance House (GFH) has decided to invest over US$ 2 billion in a greenfield site close to Navi Mumbai.
Global real estate majors such as Dubai World, Trump Organisation of US, Smart City of Dubai, Kishimoto Gordon Dalaya, Khuyool Investments, Bonyan Holding, Plus Properties, ABG Group and Al Fara's Properties among others have all firmed up their plans for the Indian real estate market with an investment of around US$ 20-25 billion in the next 12-18 months.
The boom in the real estate industry has attracted a large number of realty funds to tap into this market. According to Cushman & Wakefield, foreign investors have raised nearly US$ 30 billion since March 2005 for investing in Indian real estate.
Prominent global players like Carlyle, Blackstone, Morgan Stanley, Trikona, Warbus Pincus, HSBC Financial Services, Americorp Ventures, Barclays and Citigroup among others have all already checked into the Indian realty market.
In fact, real estate has been instrumental in India emerging as the top destination in Asia (excluding Japan) in attracting private equity investments during the first ten months of this year. Real estate accounted for 26 per cent of total value of private equity investments, with 32 deals valued at US$ 2.6 billion. And according to industry estimates, another US$ 10-20 billion would pour into the sector in the next three years.
Simultaneously, many Indian realtors are making a name for themselves in the international market through significant investments in foreign markets.
Prudential Real Estate Investors has acquired Round Hill Capital Partners Kabushiki Kaisha, a Japanese asset management firm.
Embassy Group has inked a deal with the Serbian government to construct a US$ 600 million IT park in Serbia.
Parsvnath Developers has tied up with the Al-Hasan Group in Oman.
Puravankara Group is doing a project in Sri Lanka - a high-end residential complex, comprising 100 villas.
The Hiranandanis are constructing 5000 5-star hotel rooms, which will come up between Abu Dhabi and Dubai.
Ansals API tied up with Malaysia's UEM Group to form a joint venture company, Ansal API-UEM Contracts Pvt Ltd, which plans to bid for government projects in Malaysia.
Kolkata's South City Projects is working on two projects in Dubai.
The Government 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 realty projects through the automatic route.
In case of integrated townships, the minimum area to be developed has been brought down to 25 acres from 100 acres.
Urban Land (Ceiling and Regulation) Act, 1976 (ULCRA) repealed by increasingly larger number of states.
Enactment of Special Economic Zones Act.
Minimum capital investment for wholly-owned subsidiaries and joint ventures stands at US$ 10 million and US$ 5 million, respectively.
Full repatriation of original investment after three years.
51 per cent FDI allowed in single brand retail outlets and 100 per cent in cash and carry through the automatic route.
With the economy surging ahead, the demand for all segments of the real estate sector is likely to continue to grow. The Indian real estate industry is likely to grow from US$ 12 billion in 2005 to US$ 90 billion in by 2015.
Given the boom in residential housing, IT, ITeS, organised retail and hospitality industries, this industry is likely to see increased investment activity. Foreign direct investment alone might see a close to six-fold jump to US$ 30 billion over the next 10 years.