Indian Real Estate Market

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Scope of Indian Real Estate Market

The Indian real estate market does have a major role in paving the path of the country's economy. In terms of employment generation, the real estate sector stands second to agriculture and has a major contribution towards the gross domestic product (GDP). Approximately 5% of India's GDP is contributed by the real estate sector. Next five years would see this contribution level go up to 6%.

The rapid pace of economic growth in Brazil, Russia, India and China (BRIC nations) will help the property markets soar high at a faster pace than the UK and US real estate markets. It is expected that the property sector in India would improve from the early 2010 and would gather US$ 12.11 billion in terms of real estate investment in the next five years.

Opportunities of Indian Real Estate Market

The IT & ITES sector would alone require 150 million sq ft of office space in urban Indian real estate market by 2010. There is a requirement for more commercial office space due to organized retail. The Indian organized retail industry in all probability would require an additional 220 million sq ft by 2010. And to specify, the growth in the Indian real estate market is not only restricted to a few towns and cities but spans across India - more coverage in the tier-I and tier-II cities. Almost 80% of real estate market in India occupies the residential space, the remaining 20% comprises of offices, shopping malls, hotels and hospitals. Another research report reveals that more than 100 malls with over 30 million sq feet of new shopping space are estimated to open in India by end-2010. The average profit from construction in India is 18% - nearly double the profitability figure as in US. There is a surge in the foreign institutional investors in the Indian construction sector and that is why investment is surging up.

The Indian real estate sector is supposed to get a boost from the Real Estate Mutual Funds (REMFs) and Real Estate Investment Trusts (REITs). Specifically, the REITs have the capability to capture at least 5% share of the total global real estate market by the end of 2010. The size of the global real estate market is slated to touch US$ 1,400 billion in the coming 3 years. The figure in the report stated that by 2010, REITs by themselves would hold a market size of US$ 70 billion of the total Global real estate market.

Foreign direct investment (FDI) in the real estate sector in India for 2008-09 stood at US$ 12.62 billion approximately - this is as per the figure from the Department of Policy and Promotion (DIPP).

New Projects in Indian real estate market

  1. Zuri Group Global has plans to invest around US$ 247.5 million to set up five-star business hotels and luxury residential properties by 2012.
  2. Accor Hospitality, the largest hotel chain in Europe, boasts of around 4,000 hotels spanning 90 countries. The total investment for the firm would be around US$ 130 million in India for coming up with 50 hotels in the next three years.
  3. Industries in Aeropsace and Precision Engineering Special Economic Zone at Adibatla would make an investment of around US$ 627.3 million.
  4. Shriram Properties, is a part of Chennai-headquartered Shriram Group, has plans to invest around US$ 1.02 billion in different residential and commercial projects.

Government initiatives in Indian Real Estate Market

The government has brought in many advanced reforms to unlock the potential of the Indian real estate sector. The sector has a lot of untapped potential, which can be bridged. There is a stimulus package that has been announced by the government, along with it the Central bank's move to allow banks for giving special treatment to the real estate sector, is surely going to impact the Indian real estate market in a positive manner.

Relaxed norms of Indian real estate market

  1. 100% FDI is allowed in realty projects by the automatic route.
  2. In case of integrated townships, the minimum area that would be developed has come down from 100 acres to 25 acres.
  3. The minimum capital investment for wholly-owned subsidiaries and joint ventures is US$ 10 million and US$ 5 million, individually.
  4. The original investment is entirely liable to be repatriated after three years.
  5. 51% of FDI is allowed in single-brand retail outlets and 100% FDI in cash-and-carry outlets by the automatic route.
  6. The norms for developing special economic zones (SEZs) have been simplified for getting tax free benefits.

Developers, at present, would have their land being segmented as an SEZ right at the introductory stage of approval. This shall happen only if one submits the legal documents proving land ownership. The latest budget (2009-2010) also has provided various sops to the Indian real estate market. Developers have been given a tax holiday on profits arising from the projects that started backing 2007-08. All such projects should be complete prior to March 1, 2012.

The potential of the Indian real estate market is huge. The norms and strategies by the Government are getting all the more relaxed only to give a fillip to this sector.

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