Pinnacle

REALTY MARKET ON HIGH GROWTH CURVE
S.C. Dhall
The Tribune

Low interest rates, modern attitudes to home ownership, economic prosperity as well as a change of attitude amongst the young working population from that of “save and buy” to borrow and buy and liberalised foreign development investment regime these all have contributed to this boom.

As per reports the Indian real estate sector is likely to emerge a 50 billion industry by the next couple of years.

The real estate has also emerged as the hottest sector for private equity players after IT. The higher appreciation that the real estate sector has given, has most private equity players quite excited about it.

In 2004 most companies have reported astronomical growth in profitability on the back of rising property prices. In 2005, the industry grew at around 30 per cent. Now companies have lined up projects, which are more than two to three times the size they have completed in past five years.

Once the government puts into place land reforms and addresses the challenges facing the real estate sector, this sector has the potential to contribute immensely to the country’s GDP.

It is estimated that India to experience a demand and supply gap of 18 million housing units by 2010. This apart commercial real estate demand is expected to be around 350 million sq feet, of which the IT and organised retailing sector should contribute around 300 million sq feet.

Sensing this huge opportunity, the market has seen increased interest following the FDI relaxation and the government’s SEZ policy.

The average age of a new homeowner is now 32 years as compared to 45 years a decade ago. The real estate sector will continue to derive its growth from the booming IT sector employees/professionals, since 60 to 70 per cent of the new construction is for the IT sector.

Home affordability has also doubled in the last five years. Due to rise in income levels and relatively benign property prices till recently, the affordability of homes for buyers — defined as the property price divided by the annual income of the borrower — has improved significantly from about 11 times in 1997 to 4.5 times in 2005.