A strong demand for residential housing, townships, commercial or IT parks and retail malls will continue to sustain the demand for real estate in India in the coming years.

The key drivers of the realty growth are urbanisation, growth in nuclear families, flexible lending norms and high disposable income among the growing middle-class household. Besides, thrust on infrastructure by various state governments across the country has further enhanced the growth potential for real estate development.

According to a research report by Citigroup, residential development is poised for continued strong growth over the next five to 10 years. These are mainly driven by shortfall of over 20 million housing units, increasing urbanisation, strong economic growth and rising per capita income, changing social structure and fiscal sops. However, key risks is spiraling interest rates and high property prices, which have adversely affected the affordability level in short to medium term.

On the commercial sector, strong economic growth has been predominantly driven by the services segments — domestic and the outsourcing, knowledge source segments. This has created significant demand for large scale high-quality office space across all markets. The IT or ITES sector is among the significant drivers of commercial real estate. It is expected to grow at 15-20 percent CAGR over 2010-16. Besides, non-IT sectors like banking, insurance, financial services and MNCs looking for start up operations in India will supplement the demand level. As a result total commercial real estate demand is likely to be 450 to 530 million sq ft by 2011.

The hospitality sector is another major segment poised for strong growth. Around 30,000 new rooms are in planning or under construction stage in the metropolitan and emerging cities, which will be ready by 2008-09. Incidentally, there is an immediate requirement of approximately 1,00,000 new hotel rooms but only 75 percent of that demand will be met by the projects that are under way.

Retailing is on the upswing with rise in disposable income and avid shoppers looking for a new way of shopping. Organised retail could require about 350 to 400 million sq ft of retail real estate by 2016. Also, the share of organised retailing rising to 5 percent by 2016 and sales of Rs 9,000 per sq ft of retail space.

While the demand outlook is considered strong, long term risks remain like over dependence on IT or ITES sector, increase in rentals and imposition of service tax on lease rentals in the recent budget.
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