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Real Estate

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Real Estate

May, 2012

Introduction

Real estate plays a critical role in the development of the Indian economy. It is the second largest employer after agriculture. Over the next decade, the real estate sector is expected to grow by 30 per cent.

The sector is divided into four sub-sectors: housing, retail, hospitality, and commercial. The housing sub-sector contributes five-six per cent to the country's gross domestic product (GDP). Meanwhile, retail, hospitality and commercial real estate are also growing significantly, catering to India's growing needs of infrastructure.

The construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy, according to a study done by ICRA. A unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as five times. The positive effects of growth in real estate sector are spread over more than 250 ancillary industries.

Market Size

The Indian real estate market size is expected to touch US$ 180 billion by 2020.

Recent growth in the Indian economy has stimulated demand for land and developed real estate across industries. Demand for residential, commercial and retail real estate is rising throughout India, accompanied by increased demand for hotel accommodation and improved infrastructure.

India is going to produce an estimated 2 million new graduates from various Indian universities during this year, creating demand for 100 million square feet of office and industrial space.

Further, presence of a large number of Fortune 500 and other reputed companies will attract more companies to initiate their operational bases in India thus, creating more demand for corporate space.

Apart from IT, ITES and Business Process Outsourcing (BPO), India has shown its expertise in sectors like auto-components, chemicals, apparels, pharmaceuticals and jewellery where it can match the best in the world. These positive attributes of India is definitely going to attract more foreign investors in the near future.

Investments

Real estate emerged as the popular sector for private equity (PE) funds investing around US$ 1,700 million in this sector during 2011. PE in real estate projects will fetch considerable returns by next year-end or early 2013, according to Vikram Hosangady, Partner, KPMG.

Foreign direct investment (FDI) inflows in real estate in 2011-12 (April-January) stood at Rs 2,750 crore (US$ 492.50 million).

Major Investments:

  • Mahindra Lifespaces, known for its World City projects in Chennai and Jaipur, is finalising land parcels in Maharashtra and Tamil Nadu. "We have got a go-ahead from the management and appointed architects. We are in the process of getting the land within the company by next month," said Anita Arjundas, Managing Director and Chief Executive Officer (CEO) of the company
  • Delhi-based real estate player Assotech Realty has said it will take pan-India stride by opening serviced residence in 25 major cities across India. The company said it will invest Rs 250 crore (US$ 44.69 million) in its upcoming project on the Noida Expressway. The project will be funded partly through debt and partly through internal accruals
  • Sahara India has set up a construction joint venture with 110-year-old American real estate company Turner Construction Co, a subsidiary of German construction group Hochtief, and the Acropolis Capital Group, a special situation investment and development firm. The JV company, Sahara Turner Construction, will build integrated townships called Sahara City Homes and other Sahara India projects in India worth US$ 25 billion over the next 20 years. Projects worth US$ 2.5 billion will be completed over the next five years