August 30 , 2013

Introduction
The Indian real estate and construction industry is an integral part of Indian economy and plays an important role in the development of the countrys infrastructure base. The contribution of the real estate sector to Indias gross domestic product (GDP) has been estimated at 6.3 per cent in 2013, and the segment is expected to generate 7.6 million jobs during the same period. It is also expected to generate over 17 million employment opportunities across the country by 2025. The sector comprises of four sub-sectors- housing, retail, hospitality, and commercial. While housing contributes to five-six percent of the countrys GDP, the remaining three sub-sectors are also growing at a rapid pace, meeting the increasing infrastructural needs. Riding high on the back of rapid urbanisation, positive demographics and rising income levels, the Indian real estate sector has attracted significant investment over the past few years. The growing stability of the market is reflected by the continuous growth of the core investors, with over Rs 7,705 crore (US$ 1.14 billion) invested in ready office space during the last three years.

Market Dynamics
The real estate sector of India is expected to post annual revenues of US$ 180 billion by 2020 as compared to US$ 66.8 billion in 2010-11, registering a compound annual growth rate (CAGR) of 11.6 per cent. In fact, the demand is expected to grow at a CAGR of 19 per cent between 2010 and 2014, with tier I metropolitan cities projected to account for about 40 per cent of this. Mumbai, NCR and Bengaluru account for 46 per cent of total office space demand in India. Demand growth projected to be the highest in Tier 2 cities such as Kolkata and Chennai during 2010-14.

Investments
The prime office space segment across the countrys key cities- Mumbai, the National Capital Region (NCR), Pune and Bengaluru has witnessed a fresh supply infusion of more than 20 million square feet (sq ft) in the first six months of 2013, witnessing a growth of 16 per cent on year-on-year (yo-y) basis, as per a report by CBRE. The country is ranked 20th among the top global markets for real estate investment in 2012, with investments worth US$ 3.4 billion during the year, according to a latest report by Cushman & Wakefield. It is also estimated that foreign direct investment (FDI) into real estate in India will increase to US$ 25 billion over the next 10 years. Construction development sector (including townships, housing, built-up infrastructure & construction-development projects) has attracted a cumulative FDI worth US$ 22,247.50 million from April 2000 to June 2013.

FDI flows into the construction (infrastructure) activities during the period stood at US$ 2,198.77 million, according to the department of industrial policy and promotion (DIPP). Some of the major investments in the Indian real estate sector are:
Peninsula Land has signed an agreement to buy a five-acre property in the Byculla area of Mumbai from its joint owners, Mahindra Lifespaces, the realty arm of Mahindra Group, and the Kanorias, for around Rs 650 crore (US$ 96.45 million) Godrej Properties Ltd (GPL) has entered into an agreement to develop 37 acres in Panvel, Maharashtra. The company will receive 35 per cent of the profits from the development Cushman & Wakefield has entered into an agreement to acquire Singapore-based project management specialist company Project Solution Group (PSG). The acquisition is aligned with the firm's global strategy to strengthen its operations in the Asia-Pacific Reliance Industries is expanding its presence in Africa's real estate sector. The firm acquired 10 prime plots of land in Nairobi, Kenya, for around Rs 202 crore (US$ 29.97 million) Germany-based SEA Group, engaged in the living space solutions segment, plans to invest Rs 40 crore (US$ 5.94 million) over the next two years in its Indian operations

Government Initiatives
In an attempt to encourage investors participation in the Indian housing sector, the Ministry of Housing and Urban Poverty Alleviation plans to ease the norms for FDI in real estate projects. FDI upto 100 per cent is allowed under the automatic route in townships, housing, built-up infrastructure and construction development projects to increase investment, generate economic activity, create new employment opportunities and add to the available housing stock and built-up infrastructure. The Reserve Bank of India (RBI) has relaxed norms to raise funds via external commercial borrowings (ECB) for low-cost affordable housing projects. Now, developers and builders with three years of experience in undertaking residential projects are eligible to raise funds through the ECB route. RBI has also relaxed the minimum paid-up capital norm for housing finance companies (HFCs) to raise funds through ECBs. The Government of India has sanctioned projects worth Rs 41,723 crore (US$ 6.19 billion) for building of 1,569,000 houses/dwelling units for economically weaker/lower income group sections under the Ministrys flagship Jawaharlal Nehru National Urban Renewal Mission (JNNURM) programmes. The Ministry of Housing & Urban Poverty Alleviation has planned to introduce a single-window system for clearance of all real estate projects across the country. The system could bring down the average approval time from the current 196 days to 45-60 days.

The government has also introduced the Real Estate Regulation Bill 2013 in the Parliament to set up a strong regulatory architecture to protect the interest of consumers and for the regulation & promotion of the real estate sector. Some of the initiatives taken in the union budget 2013-14 include:
For homes and flats with a carpet area of 2,000 square feet or more or of a value of Rs 1 crore (US$ 148389.97) or more, which are high-end constructions, where the component of services is greater, rate of abatement reduced from 75 to 70 percent Rs 6,000 crore (US$ 890.34 million) were given to Rural Housing Fund National Housing Bank plans to set up Urban Housing Fund. Rs 2,000 crore (US$ 296.78 million) will be provided to the fund in the current financial year

Road Ahead
Given the current level of development and friendly government policies, Indias realty sector still has a long way to go. Responding to an increasingly well-informed consumer and keeping in mind the globalisation of the Indian business outlook, real estate developers have also shifted gears and accepted fresh challenges. The most marked change has been the shift from family owned businesses to professionally managed ones. A growing migrant population due to increasing job opportunities, together with healthy infrastructure development, is underpinning demand in the regions residential real estate market. Residential real estate in India accounts for a huge 90-95 per cent of the real estate industry. According to estimates by Crisil, the demand-supply gap in Indias housing sector will stand at 75.5 million units by the end of 2014. Demand is expected to be boosted further due to Indias demographic dividend and the growing trend of nuclear families. Exchange Rate Used: INR 1 = US$ 0.0148 as on August 30, 2013 References: Ministry of Finance, Press Information Bureau (PIB), Media Report, Department of Industrial Policy and Promotion (DIPP), CREDAI, The Union Budget 2013-14