The Real Estate Sector

The Boom & bust Indian Real Estate Sector

Infusing the stagnation period, the evolution of Indian real estate industry has been awe-inspiring, fueled by the growing economy, favorable demographics and the liberalization of the foreign direct investment regulations. However, now this unceasing phenomenon in the real estate industry has begun to show signs of shrinking.

What are the possible causes of this particular trend this particular area, and what path it is likely to follow? This article tries to find solutions to these questions…

A brief overview of Indian real estate industry

Since 2004-05 Indian real estate industry has seen a tremendous growth. In the year 2004-05, it grew by 35 percent, the real estate sector is estimated to worth US$15 billion. It is predicted to grow at the rate of 30 percent every year over the next ten years attracted foreign investment of US30 billion dollars, with numerous IT parks and townships for residential use being constructed across-India. Visit:-

The term real estate covers residential homes, commercial offices and trading areas such as theaters, hotels and restaurants and retail outlets, as well as industrial structures like factories and government buildings. Real estate includes the purchase, sale and development of property, both residential and commercial buildings. Real estate’s activities industry include the hosing and construction industry too.

The sector accounts for major source of employment generation across the country. It is the second largest employer, just behind agriculture. The sector is able to make forward and backward linkages with over 250 ancillary industries like steel, cement, brick, materials etc.

Therefore a unit increase in this area of spending will has a multiplier effect, and is able to yield income as high as five times.

All-round emerge

In the real estate market, the major component comprises of housing which is 80% of the total and is growing at the rate of 35 percent. The remainder is comprised of commercial segments offices, shopping malls hotels and hospitals.

Housing units that are a part of the Indian economy surging at the rate of 9 percent, accompanied by rising levels of incomes of the middle class, growing nuclear families and low interest rates, contemporary homeownership practices and a shift in the mindset of young working class with regards to saving and buy to purchase and then repaying, have all contributed to increasing demand for housing.

Earlier cost of houses were in multiples of nearly 20 times the annual income of the purchasers, but the current multiple is less than 4.5 times.

According to 11th five year plan, the shortage of housing on 2007 was 24.71 million and total requirement of housing (2007-2012) is 26.53 million. The total fund requirement in the housing sector in the urban area in the 11th Five Year Plan is estimated to be 361318 crores.
The summary of investment requirements for XI plan is outlined in the following table

SCENARIO Requirements for investments
Housing shortages at the start of the XI planning period 147195.0
A new addition to housing stocks in the XI Plan period, which includes the additional housing shortage during the period of plan 214123.1
Total housing requirements for the plan time 361318.1

Office space: the rapid growth of Indian economy can creates a flood of commercial property market that can help meet the demands of business. Commercial office space demand is driven by the growing outsourcing and Information Technology (IT) industry , as well as organized retail. For example, IT and ITES alone is projected to require 150 million square feet of space across urban India in 2010. Similarly, the organised retail industry is likely to need more than 220 million sqft in 2010.

Shopping malls: over the past 10 years, urbanization has risen at a CAGR of 2percent. Due to the expansion of the services, which has not only pushed up living standards of the the urban populace but also has made it more conscious of brands. If we go by numbers Indian the retail sector is believed to be at US 350 billion dollars and expected to at least double by the end of 2015.

The rising levels of income and a shift in perception toward brands will lead to increased demand for spaces, which will also provide opportunities for growth in the mall’s development.

Multiplexes: Another major key driver of growth in the real estate industry is the increasing the demand for multiplexes. This growth is attributable to the following factors:

1. Multiplexes have between 250 and 400 seats per screen as against 800-1000 seats in a single-screen theater This gives owners of multiplexes added advantages, allowing them to maximize their capacity utilization.

2. Aside from this, non-ticket income like food and beverages and leasing excess space to retailer provides excess income to theatre operators.

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