The Real Estate Sector

boom & bust Indian Real Estate Sector

Engulfing the period of stagnation, the evolution in the Indian real estate industry is phenomenal, driven by, growing economy, favorable demographics and liberalized foreign direct investment regime. However, now this unceasing trend in the real estate sector has started to exhibit the signs of shrinking.

What can be the reasons of this particular trend this area and what will be the next direction will it take? This article seeks the answers to these questions…

An overview of Indian real estate industry

Since 2004-05 Indian real estate has experienced a massive growth. In the year 2004-05, it grew by, 35 per cent the real estate industry is estimated to be worth US$15 billion. It is expected to grow at a rate of 30 per cent per year for the next decade and attracting foreign investment worth US$ 30 billion, and a variety of IT parks and residential townships being constructed across-India.

The term”real estate,” as it is used, covers residential housing, commercial offices and trading areas such as theatres, hotels and restaurants, retail outlets, factories, industrial structures and government buildings. Real estate is the acquisition, sale and development of properties, both residential and non-residential structures. The activities of real estate sector embrace the hosing and construction sectors too. Visit:-

It is the main source of employment creation in the nation, which makes it the second largest employer just behind agriculture. The sector is able to make backward and forward linkages that connect to around 250 ancilary industries, including cement, brick,steel, building materials, etc.

Thus, a per-unit increase in expenditure of this sector has a multiplier effect, and is able to earn as much at five-fold.

All-round appearance

In the real estate industry, the largest portion is comprised of housing that represents 80% and is growing at a rate of 35 percent. The remaining portion is commercial segments such as offices, shopping malls hotels , and hospitals.

Housing units In the context of the Indian economy surging at the rate of 9 % , it is also accompanied by rising incomes levels of middle class people, growing nuclear families and low interest rates contemporary homeownership practices and the changing mindset of the young working class regarding saving and buy to buy and then repaying, have all contributed to soaring housing demand.

In the past, houses’ cost was in the range that was 20 times or more the annual income of the purchasers, but the current multiple is lower than 4.5 times.

In the 11th five-year plan, the housing deficit in 2007 was 24.71 million and total requirement of housing in the period (2007-2012) is 26.53 million. The total amount of funds required in the housing sector in the urban area for 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 The need for investment
Housing shortages at the start of the XI planning period 147195.0
New additions to the housing stock in the XI plan period , including the housing shortage that was added during planning period 214123.1
Total housing requirement for the plan time 361318.1

Office spaces: the fast expansion of Indian economy can has a devastating effect on the commercial property market that can help meet the needs of business. Commercial office space demand is driven by the increasing outsourcing and Information Technology (IT) industry and organised retail. For instance, IT and ITES alone will require 150 million square feet across urban India by the year 2010. In the same way, the organized retail business is likely to require an additional 220 million sqft by the year 2010.

Shopping malls: Over the past ten years urbanization has increased at the CAGR of about 2%. Due to the expansion of the service sector which has not only increased living standards of the the urban populations but also has become more conscious of brands. If we consider numbers Indian the retail sector is believed to be at US $ 350 bn and forecast to be nearly double by 2015.

Thus rosining income levels and changing attitudes towards branded goods will lead to an increase in demand for shopping spaces, which will also provide future growth opportunities in the development of malls.

Multiplexes: Another major key driver of growth in the real estate industry is the rising need for multiplexes. This growth is witnessed due to following factors:

1. Multiplexes have between 250 and 400 seats each screen, as opposed to the 800-1000 in a single screen theatre, which give multiplex owners the advantage of being able to optimize capacity utilization.

2. Other than these ticket revenues, non-ticket items such as food and drinks and leasing space to retailers can provide additional profits to theatre producers.

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