The Real Estate Sector

Boom & the bust Indian Real Estate Sector

Infusing the stagnation period In the past, the development of Indian real estate industry has been awe-inspiring, fueled by a growing economic growth, favorable demographics, as well as the liberalization of foreign direct investment regulations. But, the unending trend in the real estate sector has started to exhibit the indications of recession.

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

An overview of Indian real estate industry

Since 2004-05, the Indian real estate industry has seen a tremendous expansion. At a rate of 35 percent, the realty industry is estimated to be worth US$ 15 billion and projected to grow at a rate of 30 percent every year over the next ten years, attracting foreign investments worth US$30 billion and a variety of IT parks and townships for residential use in construction across India. Visit:-

The term”real estate” refers to residential housing, commercial offices and trading spaces like hotels, theaters, restaurants and other establishments retail outlets, industrial buildings such as factories and government buildings. Real estate involves the purchase and development of property, both residential and commercial structures. Real estate’s activities industry include the hosing and construction sector also.

The industry is the largest job creation across the country. It is the second-largest employer just behind agriculture. It also has forward and reverse linkages with around 250 other industries, including cement, steel, bricks, material , etc.

Therefore a unit increase in the amount of money spent by this sector could result in multiplier effects and be able to produce income as high than five times.

All-round development

In real estate sector major element is housing. It accounts for 80% and is growing at a rate of 35%. The remainder is comprised of commercial segments such as shopping malls, office buildings, hotels and hospitals.

Housing units that are a part of the Indian economy growing at a rate of 9 percent, accompanied by rising income levels of middle class people, growing nuclear families and low interest rates contemporary homeownership practices and the changing mindset of young working class regarding saving and buy-to-buy and then repaying, have all contributed to soaring housing demand.

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

According to the 11th five year plan, the housing deficit in the year 2007 stood at 24.71 million and the total demand of housing in the period (2007-2012) is 26.53 million. The total requirement for funds in the housing sector in the urban area in the 11th Five Year Plan is estimated to be Rs 361318 crores.
The main investment requirements for XI plan can be found in the following table

SCENARIO Investment requirement
Housing shortage at the beginning of the XI Plan period 147195.0
New additions to the housing stock in the XI plan period including the additional housing shortage during planning period 214123.1
Total housing requirements for the plan period 361318.1

Office spaces: the fast expansion of the Indian economy can has a devastating effect on the demand of commercial property in order to satisfy the requirements of businesses. Increase in office space commercial demand is driven by the growing outsourcing and IT (IT) industry , as well as organized retail. For example, IT and ITES alone is estimated to require 150 million square feet across urban India by 2010. Similarly, the organised retail business is likely to require an additional 220 million sqft in 2010.

Shopping malls: in the last 10 years, urbanization has upsurge at the CAGR of 2.2%. Due to the expansion of the service industry that has not just pushed up the disposable incomes of urban people, but also made them more brand conscious. If we look at the numbers, Indian retailers’ industry has been estimated at around US $ 350 bn and is expected to double by 2015.

Thus rosining income levels and the changing perception of merchandise that is branded will result in an increase in demand for shopping malls. This will lead to strong potential for growth in the mall’s development.

The other major growth driver for real-estate sector is the rising demand for multiplexes. The increased growth could be witnessed due to following factors:

1. Multiplexes are made up of 250-400 seats on each screen, which is compared to 800-1000 people in a single screen theater This gives owners of multiplexes additional advantage, enabling them to maximize their capacity utilization.

2. Aside from this, non-ticket income such as food and drinks and leasing excess space to retailers can provide additional revenue to theatre owners.

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