India is one of the major countries in Asia with an improving market there are concerns about an asset-price bubble raising questions. Property Price is touches the heights of sky and increasing very fastly. India continues on its high-growth trajectory in many sectors there is one industry that clearly epitomizes the growth in the economy and provides a solution to the changing demography of the country and that’s none other than the Real Estate.

WHILE A DECADE earlier this sector was market by shady builders and unhappy customers, there has been a real turnaround in the real estate business. It is estimated that in the next three to four years this sector would contribute around 5 to 6per cent to India’s GDP.

Indian real estate boom has been partly backed by the revolution brought about by private banks in the Home Loans business as it has proved to be the most lucrative segment for the Indian banking industry as well.

Well, what are the factors that have pushed this sector to the present iconic status?:p

Firstly, it is the sustained high growth rate of GDP and increasing GDP per capita in the country providing an impetus to the real estate demand across segments. According to the recent FICCI report: the last three years have seen real GDP rise a cumulative 26 per cent, with impressive increases of 8.5per cent in 2003/04, 7.5per cent in 2004/05 and 8.4per cent in 2005/06 on the back of the robust growth across industries. Thus, setting into motion the demand for commercial / industrial as well as residential real estate.

Secondly, the huge demographic shift being witnessed in the country in the last decade is cited as one more reason behind the sector’s exponential growth. The increasing rate of life expectancy, declining infant mortality and a high but falling birth rate in the country have created an additional demand for housing and infrastructure for the ever-increasing burgeoning population.

An estimate shows that the present 1.1 billion India’s population would touch 1.5 billion by 2030, thus edging out China as the most populous country in the world. Coupled with the significant rise in the working population and dependency ratio below 50per cent, it is expected it would generate higher personal savings and stronger investments, resultantly boosting the growth of real estate further.

In pursuance of the expected growth that this sector will take, the future is full of challenges. In the commercial office segment, in spite of the huge demand, the developers may have to face heat from the ups and down of other sectors since this segment, in particular, is highly dependent on the performance of the Indian IT/ITES. Any unforeseen downturn in the business prospect of IT/ITES industry would have a significant impact on the vacancy levels of the upcoming commercial office space stock in the country.

Secondly, with the introduction of the SEZ policy, it is believed that a significant amount of the office space demand will be targeted in SEZs. Though, the current SEZ policy does not allow the migration of existing units to SEZs, in case such migration becomes possible, the market will witness supply of a huge stock of un-used office space, which will lead to substantial crash in rental and capital values in the segment. The real challenge for the reality players, therefore, lies in estimating the market demand and validating supply of any additional commercial space.

While in the residential segment, if one goes by the Planning Commission report there is a shortage of approximately 9 million units; and this deficit, as per the Asian Development Bank, would escalate to around 22 million units by 2007/08, and upto 10 million units by 2030. The most deterring challenge that would come on the way would be the product differentiation and correct understanding of the consumer needs.

Another segment that would gain momentum is the hospitality sector. According to the Ministry of Tourism, Government of India, there are an estimated 1.2 million hotel rooms in the country, of which star hotels account for a mere 7per cent (approximately 80,000 rooms). The Ministry forecasts that there will be a total 2.9 million hotel rooms in India in 2010 and 2020 respectively. From the real estate perspective, the biggest deterrent in the growth in this segment could be the delay in further relaxation for FDI in the sector. Although the expected continuance of consumerism will drive the retail demand, which will be substantially be catered by domestic retailers, the market will still be limited till the entry of global realtors.

So far, one point that has come out from the reality boom is that with the entry of global realtors in conjunction with the national players, the industry is poised to experience a landscape change. These players should watch for these trends and suitably define their strategies to succeed in this rapidly emerging market.

Source:merinews
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