Real Estate Sector in India: An Introduction
The Planning Commission of India defines ‘Real estate’ as land, including the air above it and the ground below it, and any buildings or structures on it. It is also referred to as realty.
It covers residential housing, commercial offices, trading spaces such as theatres, hotels and restaurants, retail outlets, industrial buildings such as factories and government buildings. The activities of the real estate sector encompass the housing and construction sectors also.
Real estate business involves transactions, such as purchase, sale, and development of land, residential and non-residential buildings. Major players in the real estate market are the land owners, developers, builders, real estate agents, tenants, buyers etc.
Indian cities are normally categorised into three tiers:
Tier I comprises the Delhi, Mumbai and Bangalore.
Tier II consists of Hyderabad, Pune and Chennai, the cities targeted by companies as alternative off shoring destinations and which now possess a well-trained pool of skilled labour. According to a Deutch Bank (DB) Research the cost advantage of Tier II cities over those in Tier I is estimated at 15% to 20%.
Tier III cities: But given the rising costs in Tier II cities in recent years, companies are increasingly eyeing Tier III cities. These are cities with populations of more than a million (10 lakhs) are not yet completely established as outsourcing and off shoring destinations. Their absolute cost advantage over Tier I cities is estimated at between 15% and 30% by the same DB Research.
As real estate construction and values have expanded in India — buoyed by healthy economic growth, and coupled with a series of IPOs by property firms — so in recent years has India's property sector changed substantially. These trends of growth and modernisation are set to continue, with some market participants forecasting that real estate development in India will grow from US$12 billion in 2005 to US$90 billion by 2015.
In addition, international capital has become more interested in Indian property and is seeking transparent and liquid ways to invest. Furthermore, with a more global property market, the level of competition in the Indian property business is rising, while the need for property firms to strengthen their operational infrastructures, personnel and finances to better compete is also becoming more acute.
India's GDP growth rate has averaged more than 8% over last few years, up from an average of around 6% during the 1990s and has touched the 9% last fiscal. India emerged as a land of opportunities.
The principle drivers of India's GDP are changing demographics, rising levels of foreign investment, a vibrant services sector powered by the IT and ITES sectors and buoyant exports. Notwithstanding concerns over lack of structural reform, these factors are likely to be sustained in the foreseeable future, resulting in continued strong GDP growth.
This economic growth has, in turn, stimulated demand for property to help meet the needs of business, such as modern offices, warehouses, hotels and retail shopping centres. It has also boosted housing demand as a wealthier populace seeks upgraded accommodation. Moreover, shrinking household size and improved access to housing finance have boosted the demand for residential property. Tax incentives have also been granted to interest and principal paid on home loans, which has made owner-occupied property more attractive.
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