The Real Estate Sector

boom & Bust of Indian Real Estate Sector

Engulfing the period of stagnation The development of Indian real estate industry has been awe-inspiring, fueled by the growing economic growth, favorable demographics, and liberalized foreign direct investment regulations. However, now , this constant phenomenon of real estate sector is beginning to show signs of shrinking.

What are the possible causes for this trend in this sector and what future direction will it follow? This article will try to provide answers to these questions…

Overview of Indian real estate industry

Since 2004-05 Indian real estate has experienced a massive growth. With a growth rate of 35 percent, the real estate sector is estimated to worth US$15 billion. It is projected to grow at a rate of 30 percent annually over the next decade and attracting foreign investment worth US30 billion dollars, including a myriad of IT parks and residential townships being built across India. Visit:-

The term”real estate” covers residential properties, commercial offices and trading space such as hotels, restaurants, theaters and retail outlets, as well as industrial buildings such as factories and government buildings. Real estate includes the purchase, sale and development of the land, including residential and non-residential buildings. The activities of the real estate sector embrace the hosing and construction sectors too.

The sector accounts for major source of employment creation in the country, being the second largest employer after agriculture. It has forward and reverse linkages with about 250 ancilary industries like cement, steel, bricks, material etc.

A unit increase in spending in this sector could result in multiplier effects and be able to earn as much than five times.

All-round development

In the real estate market, the major part is housing, which accounts for 80% and is growing at the rate of 35%. Rest of the property is commercial, including office, 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 an increase in incomes for the middle class people, growing nuclear families with low interest rates new approaches to homeownership and change in the attitude of the young working class with regards to saving buying to buy and pay back, has contributed to an increase in the demand for housing.

The house’s cost in the past was in the range that was 20 times or more the annual earnings of buyers. Today, the multiple is less than 4.5 times.

According to the 11th five year plan, the shortage of housing on the year 2007 stood at 24.71 million. The total requirement of housing (2007-2012) is 26.53 million. The total fund requirement in the urban housing sector for the 11th five year plan is estimated to be Rs 361318 crores.
The summaries of the investment requirements for XI plan is outlined in this table

SCENARIO Investment requirement
Housing shortages at the start of the XI Plan period 147195.0
New additions to the housing stock in the XI plan period , including the additional housing shortage during the period of plan 214123.1
The total housing requirement for the plan period 361318.1

Office buildings: the rapid growth of Indian economy can creates a flood of need for commercial properties in order to satisfy the needs of business. Commercial office space demand is driven by the increasing outsourcing and IT (IT) business and organized retail. For instance, IT and ITES alone is expected to need 150 million square feet of space across urban India by the year 2010. Similar to that, the organised retail sector is predicted to need more than 220 million sqft by the year 2010.

o Shopping malls: over the past 10 years, urbanization has risen at a CAGR of about 2%. With the growth of service sector which has not only raised the disposable incomes of urban people, but also made them more brand conscious. If we go by numbers Indian commerce is thought at around US $ 350 bn and is expected to double by 2015.

So, rising incomes and the changing perception of merchandise that is branded will result in an increase in demand for shopping spaces, which will also provide future growth opportunities in mall development activities.

Multiplexes: Another major growth driver for real-estate sector is the rising need for multiplexes. The increase in demand can be seen due to these factors:

1. Multiplexes comprises of 250-400 seats per screen , compared to 800-1000 seating in a single-screen theater that gives owners of multiplexes an additional advantage, enabling them to optimize capacity utilization.

2. Other than these ticket revenues, non-ticket items like food and beverages and leasing excess space to retailer provides excess profits to theatre producers.

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