Role of Real Estate in the contemporary Economical scenario

An

Indian Perspective

EXECUTIVE SUMMARY The real estate sector which has taken off has the potential to take itself to the next level in a developing nation like India. With Indian economy holding its nerve in the current recession and emerging out with least casualty, India has now become a lucrative destination for many big MNCs including most of the fortune 500 companies. With industrialisation on the rise and with a controlled and a well regulated monetary & industrial policy, this growth seems to go on till perpetuity. The FDI inflow has also increased considerably bringing in more liquidity in the market. Keeping this positive wave and governments well planned approach in mind it seems quite obvious that the demand for real estate is rising too fast with the increase of liquidity in the market. The supply however is not enough to match this huge demand and making the sector has immense scope. The growth of this sector will not go down in the coming ten years as demand will definitely grow with the increase in population (increase in skilled labour). The economic performance of India has provided strong impetus to the real estate sector, which has been witnessing heightened activity in the recent years. Substantial end user and investor interest, large scale investment in infrastructure and rapid urbanisation have contributed to the growth trajectory of Indian real estate. The real estate growth story is clearly visible in urban centres such as Delhi, Mumbai and Bengaluru which have acquired global character and recognition. The growth of the sector has been complemented by favourable policy changes like liberalisation of Foreign Direct Investment (FDI) guidelines and significant increase in investment on physical infrastructure. FDI in Real Estate is beneficial to economy, measures should be taken to increase to provide congenial investment atmosphere to foreign direct investors. There is also a need to completely overhaul the union and state legal system governing various aspects of real estate. There is need to open up more avenues to facilitate long-term finance for the housing sector. Computerizing land records and circulation of and access to this database, would be one of the most useful features of reform in this country.

Introduction
The Indian real estate sector has witnessed a revolution, driven by the booming economy, favourable demographics and liberalised foreign direct investment (FDI) regime. Growing at a scorching, 35 per cent the realty sector is estimated to be worth US$ 15 billion and anticipated to grow at the rate of 30 per cent annually over the next decade, attracting foreign investments worth US$ 30 billion, with a number of IT parks and residential townships being constructed across-India. This substantial growth has been the result of increasing demands from off-shoring businesses. Off-shoring consulting houses and call centres have generated demand for real estate to the extent of more than 10million sq.ft. Every year, 78 percent of the money spent on real estate goes to the GDP (Gross Domestic Product). About 80 percent of the real estate development in India has been in the field of residential housing. The remaining 20 percent of the real estate includes office, shopping malls, entertainment centres, hotels, multiplexes and hospitals. What prompts an average person to try his fortune in the real estate sector? The reasons are numerous, the first and foremost being the myth that the real estate business is riskless. The second reason is the growing Indian middle class with a low propensity to consume and more botheration about future. Thirdly, the ever growing housing needs fuelled by low interest rate. Overview The Indian economy has transformed substantively over the last two decades, growing consistently at an average of 8 percent and is poised to take place among the leading economies in the years to come. The economic performance of India has provided strong impetus to the real estate sector, which has been witnessing heightened activity in the recent years. Substantial end users and investor interest, large scale investment in infrastructure and rapid urbanization have contributed to the growth trajectory of Indian real estate. The real estate growth story is clearly visible in urban centres such as Delhi, Mumbai and Bengaluru which have acquired global character and recognition. Growing at a rate of 30 per cent, the real estate sector has emerged as one of the fastest growing investment areas for domestic as well as foreign investors. The sector will remain as a booming sector and more investment is expected in the coming years. Construction and allied sectors are considered as one of the largest employing sector in India (including construction and facilities management). This vital sector is linked to about 300 ancillary industries like cement, brick and steel. So this sector has a strong backward and forward linkages and the growth will translate into an overall positive impact on these ancillary sectors too. Resultantly, a unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as 4.5 times. According to Mckinsey report the average profit from construction in India is 18%, which is double the profitability for a construction project undertaken in the US. Five per cent of the countrys GDP is contributed

by the housing sector. In the next three or four or five years this contribution to the GDP is expected to rise to 6%. Scope: Houses are nowadays counted as a transitory asset. The idea of buying a house that will last a lifetime has gradually vanished. The buzzword nowadays is 'investment'. Both the policymakers and the stock-brokers share an united view in this aspect. The second largest employing sector in India (including construction and facilities management), real estate is linked to about 250 ancillary industries like cement, brick and steel through backward and forward linkages. Consequently, a unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as five times.

Methodology We have collected secondary data from journals, magazines, newspaper articles, NHB,IRBI review and the internet. Thereafter we have analyzed the data to find out the following: Impact of the economy on the real estate industry Current scenario and future prospects of the industry. To analyze the future scenario of Effect of Real Estate in India Economy.

Limitations Due to time constrain we have relied only on the secondary data taken from internet and newspaper articles.

Theoretical Analysis

Real Estate Business Includes: Appraisal Professional valuation services Brokerage Assisting buyers and sellers in transactions Development Improving land for use by adding or replacing buildings Property Management Managing a property for its owner(s) Real Estate Marketing Managing the sale side of the property business Relocation Services Relocating people or business to difficult country Types of Ownership:

 Freehold: Provides the owner the right to use the real estate for any lawful purpose and sell when and to whom the owner wishes. Life estate: An interest in real estate which is granted to a life tenant until that person dies. The interest terminates upon the death of the life tenant. Estate for years: Similar to life estate but term are a specified number of years. Leasehold: The right to posses and use real estate pursuant to the terms of a use. Primary Segments of Real Estate: 1. Primarily Residential 2. Commercial 3. Retail Factors influencing the price of Real Estates: 1. Physical characteristic property 2. Geographical area 3. Existing market value Factors determining the value: Demand: Demand refers to peoples willingness and ability to buy or rent a given property. In part demand arises from a market areas base. In most real estate markets, the source of buying power comes from jobs.Property values follow an upward path when employment is increasing. The real estate market in India has seen remarkable changes in the past few years. The rapid expansions of information technology is highly responsible for this growth. Supply Supply means sizing up the competition. Nobody wants to pay more for a property than the price they can pay for competing property. An integral part of value analysis requires identifying sources of potential competition and then inventorying them by price and features. Rental Trends in India Recent trends of rental properties in India are conspicuous by the immense potential that is being realized today. Though the interest rates on home loans, continued tax exemptions on such prompts people to buy proper. The demand for more capital appreciation in the wake of rising prices coupled with home loan rate hike has not dampened the buying spirit. This has in ways propelled demand for rental property in India.

Prospect of future sustainability of Real Estate in India Presently, there is no asset bubble, so nothing to worry for people possessing property in the Indian Real Estate segment.After a bullish run for two years, the graph of the booming real estate market seems to have begun to slide. This has resulted in a virtual meltdown in the real estate segment which was considered to be overheated until a few months back.Now the realtors are setting their sight on sub urban areas for development due to the competitive land prices pushing themselves away from the metropolitan high ends.The experts in this segment

suggest that in the three primary segments of the real estate development; primarily residential, commercial and retail, the strong growth with sustainability is achievable by the year 2010.Despite of the graph sliding down, ranking fifth in the retail sector from amongst 30-emerging global retail markets, the Indian real estate segment is being predicted to witness an investment of Rs 100 billion the next two financial years. And if the corporate survey is to be believed, the country will also see a steep rise of 1.19 lakh job opportunities in the real estate segment in the next financial year. Industry feedback and business associations indicate that a large number of firms have evinced interest in setting up special economic zones (SEZs).In the commercial space segment, business opportunity is led by the unprecedented outsourcing activity in the country that in turn is driven by Information Technology (IT) or IT-enabled services. Many global firms are setting up back offices and outsourcing their work to India. Growth in this sector is being fuelled by incentives given by the Government of India, which has attracted huge Foreign Direct Investment. For example, the Dubai-based real estate major Emmar group is busy setting up SEZs in Haryana at an estimated investment outlay of $1.5billion.Now days, developers are not risking their moolahs on high priced lands and are under heat at this point of time. The main problem persisting in the real estate market is the affordability. With the prices of all the three segments Sky rocketing, affordability has become a cause of concern for the realtors. This is also because of the high interest rates applied on the developers which are virtually passed on the consumers when they buy properties. The static income level of the middle income grade individuals who are the real investors in the market, has also added to the woes of the developers. Currently, the real estate sector is quite fragmented with most players having presence limited to select cities or regional geographies and relatively few players having national presence.While at least 10 major developers are estimated to have a national level presence, some of the well known city focused developers are expected to venture out into other locations based in that region. Larger regional developers increasing their footprints across the country include Rahejas (Mumbai), DLF (NCR), Ansals (NCR), Unitech (NCR), Sobha(Bengaluru) who have already started penetrating other regions and have announced several projects.

Out look Over next five years, the commercial real estate market is expected to grow at a CAGR of 2022 per cent and would continue to derive its growth from the thriving offshoring industry. Over the medium term, the further opening up of the economy is expected to lead to a broader occupier base. The supply of commercial office space will remain concentrated in the suburban areas and in the form of IT and integrated campuses. Large supply of commercial space is also expected from SEZs over the next few years.

Current Scenario India is on a growth path with a significant element of consistency & fundamental strengths to boot. Economic indicators such as the GDP (Gross Domestic Product), Per Capita Income, Forex reserves, FII's (Foreign Institutional Investments) & Industry growth rate which includes the manufacturing & farm sector are all at their record highs. Also a tender Stock Market & a significant shift from a traditional agriculture & manufacturing based economy to a service oriented one, especially in Urban & Semi-urban segment; are factors which most economists would support. Mumbai, Delhi & their respective suburbs have predominantly witnessed the highest growth; with some projects being benchmarked against global standards. Rationalization by the respective state governments with regard to allowing divestment of non-operational textile mills & other such manufacturing units which had so far occupied large tracts of land in prime locations; have been an important factor responsible for exciting new creations. Also, quite a few home-grown family run property development companies have truly gone professional while facing competition from real estate off-shoots of larger corporations from the organized sector. Developers have realized the merits of corporatizing themselves and enhancing transparency in terms of their financials. While earlier even the reputed builders had difficulty accessing formal channels of credit, today almost every bank and housing finance company has relationship tie-ups with developers and are keen to lend to them at competitive rates. Lenders are also monitoring the projects more closely. For instance, lending to developers is often through a mechanism which ensures that funds are utilized only for that particular designated project. Today specific projects of developers are also being rated. The objective of the ratings is to help the financers as well as the end users to take a decision while investing in a real estate project. The rating system also means a greater amount of transparency and disclosure on the part of the developers. India real estate companies have increased in number in recent times due to the boom in the real estate sector itself which again was a function of the information technology boom in India in the last few years, accompanied by the growth of the Indian economy at 8%. The soaring prices of real estate in India have led to corporate attention to this sector, with a number of India real estate companies jumping onto the real estate bandwagon in recent years. The demand for property is constantly getting steeper in India and as a result, the growing numbers of real estate companies in India comes as no surprise. India real estate companies have witnessed growth in business in the last few years. The government, however, needs to keep an eye on this sector to ensure that the infrastructure provided by these companies is of international standards, at least in the IT sector. The government also needs to ensure that India real estate companies are fair in their dealings with people.

Role of IFCI

1. Opening of IIDL has placed more focus on the real estate 2. The present status regarding IFCI like expertise, its infrastructure will play an

important role in achieving new heights. 3. They should also practice what the term-lending institution practises what is called narrow banking
4. It holds stakes in the Stock Holding Corporation of India, LIC Housing Finance,

rating agency ICRA (which is all set to hit the market with its maiden public offer), and the Over-the-Counter Exchange of India which will help in future growth in this sector. 5. Besides, IFCI holds an additional 5.5 per cent in NSE. The boom in the financial services sector means that IFCI has a great opportunity to unlock value by diluting its holding in these entities. And then, it also has real estate of about 200,000 square feet.
6. It has to work out a new revenue model and cannot be dependent on giving out plain

loans, which is at the low end of the chain as far as the financial services sector goes. It also has to graduate to being a knowledge-based player.

Conclusion:
Indias Economy has grown by more than 9% for three years running, and has seen a decade of 7%+ growth. This has reduced poverty by 10%, but with 60% of Indias 1.1 billion population living off agriculture and with droughts and floods increasing, poverty alleviation is still a major challenge. The elaboration on steps taken towards real estate development programs by the national government and IFCI and including various other financial institutions like NHB in recent times has reduced growth constraints and contributed greatly to the overall growth and prosperity of the country. However there are still major issues around federal vs. state bureaucracy, corruption and tariffs that require addressing. During this period of stable growth, the performance of the Indian service sector has been particularly significant. The growth rate of the service sector was 11.18% in 2007 and now contributes 53% of GDP. The industrial sector grew 10.63% in the same period and is now 29% of GDP. Agriculture is 17% of the Indian economy. Adding to all these traditional members theres a new member called REAL ESTATE participating drastically in Indias growth process and establishing India globally with a new a prospective. India is on its way to see a new dawn of a new day.