India - Real Estate Investment

The growth curve of Indian economy is at an all time high and contributing to the upswing is the real estate sector in particular. Investments in Indian real estate have been strongly taking up over other options for domestic as well as foreign investors.

The boom in the sector has been so appealing that real estate has turned out to be a convincing investment as compared to other investment vehicles such as capital and debt markets and bullion market. It is attracting investors by offering a possibility of stable income yields, moderate capital appreciations, tax structuring benefits and higher security in comparison to other investment options.

A survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) and Ernst & Young has predicted that Indian real estate industry is poised to emerge as one of the most preferred investment destinations for global realty and investment firms in the next few years.

The potential of India's property market has a revolutionizing effect on the overall economy of India as it transforms the skyline of the Indian cities mobilizing investments segments ranging from commercial, residential, retail, industrial, hospitality, healthcare etc. But maximum growth is attributed to its growth from the booming IT sector, since an estimated 70 per cent of the new construction is for the IT sector.

High demand for commercial real estate
The commercial property market has been growing at an annual rate of approximately 30% over the past eight years across major locations in India. Moreover, there is an up shooting demand for 200 million sq. ft over the next five years.

Real estate industry research has also thrown light on investment opportunities in the commercial office segment in India. The demand for office space is expected to increase significantly in the next few years, primarily driven by the IT and ITES industry that requires an projected office space of more than 367 million sq ft till 2012-13.

Retail sector facilitating real estate growth
Apart from the IT and ITES industry influencing the Indian real estate sector, India is also getting into the knowledge based manufacturing industry on a large scale. Retail, one of India's largest industries, has presently emerged as one of the most dynamic and fast paced industries of our times with several players entering the market.

The contemporary retail sector in India which is reflected in sprawling shopping centers and multiplex- malls is also contributing to large scale investments in the real estate sector with major national and global players investing in developing the infrastructure and construction of the retailing business. Over 500 shopping arcades are under construction phase and will be operational by 2008.

Accounting for over 10 per cent of the country's GDP and around eight per cent of the employment retailing in India is gradually inching its way toward becoming the next boom industry. And if industry experts are to be believed, the prospects of both the sectors are mutually dependent on each other.

Another emerging trend in real estate sector in India is investment in the hospitality or hotel industry. The exceptional boom in inbound tourism and the IT sector has also led to an unprecedented shortage of rooms, with hotels all over the country witnessing their highest-ever occupancy rates.

SEZs - the emerging investment option
Moreover, as real estate sector expands beyond the city limits with government promoting industrial belts, real estate developers are eyeing special economic zones (SEZs) as an extension of their business. Several upcoming special economic zones are also expected to provide the momentum to the commercial office space development in related area where the land comes cheaper; and a SEZ developer is entitled for tax exemptions like a 10-year corporate tax holiday.

On the whole, Indian real estate sector is slated to mark the growth to $40-50 billion in the next five years. Also, India is witnessing developments of hi tech cities, a trend that has been embraced by most Indian cities.

Further, India's improving image, as a corporate base for Asian markets and strong growth opportunities in emerging sectors such as financial services, pharmaceuticals, telecommunications, and biotechnology will also boost demand and broaden the occupier base.

FDI - inviting real estate investments
Not surprisingly, most foreign investors have aimed India in a big way, largely through joint ventures. Along with curtailing the risk factor, it provides the participating companies an exit route. Since 2005, when FDI in Indian real estate sector was permitted, US $7-8 billion have been parked in.

The Government of India's liberalization and economic reforms programme encourages industrial policy reforms that have reduced the industrial licensing requirements, removed restrictions on investment and expansion, and facilitated easy access to foreign technology and FDI. Increased inflow of investments arising out of flexible FDI policies is sure to have a direct and positive impact on the real restate scenario of India. More investments mean more job opportunities and more jobs means more workforces. This has created a huge demand and supply gap in housing in India. The booming IT industry has also resulted in a large section of young investors who with high-income jobs chose real estate as an investment option.