The housing industry in India has been struggling since
Independence. The government has to be blamed for the current state
of affairs, so too the builders and developers. The problems are
numerous, the solutions are obvious, but the choices are difficult and
few. India does not have any option, but to act strongly and
immediately. This willprovide the impetus to get
the economy back on the track for double-digit growth.
The Present contribution
of the housing construction industry in India is small when compared to
developing and developed nations. The sector contributes only 1% of
GDP in India, compared to 3% to 6% in other developing countries. If the above issues are addressed and the economies were
to grow at 10% a year, the sector would grow at 14% a year and create over 3.2
million new jobs over the next 10 years.
The current boom in real
estate is more end-users driven, reason being the tax concession for first-time
home buyers, low interest rates, higher disposable income and disintegration of
joint families. The boom and bust of 1995 was driven by speculation
and prices had touched unrealistic levels. Even today’s peak prices pale in comparison to the peak
of 1995. The current prices are just about 10-15% more that the peak
of 1995, if one considers inflation and interest for the last 10
years. The prices look undervalued by about 10-12%. So in
the short term, the prices will rise by 10-12% and will stabilize thereafter.
Residential demand shows
no signs of receding in spite of seemingly large supplyin the pipeline. It is expected that there will be sustained
end-use buying pressure. The good news however is that the first few
real estate venture funds have shown strong appetite for residential township
projects. Also, there has been huge pre-leasing activity in the
retail sector. One expects the strong currents of an upbeat economy
to increase the presence of organized retailers (currently at around Rs. 30,000
crore). This will certainly push the demand for malls and high
street properties.
Currently, there seems
to be a temporary balance in ready-to-use commercial space and demand. Though
occupiers would want space at Rs. 20-25 per sqft, they are not willing to
compromise on quality. This is good news for real estate.
However, occupiers would
definitely pay a premium for any ready-to-use commercial space with sound
infrastructure facilities for the IT and IT’es sectors. There is a
great need of developers who are willing to invest to create
such facilities across the cities for companies who will be coming in to test
the waters.
The Indian IT sector is
expected to cross $28.3 billion in 2004-05. The IT’eS segment is expected to record a 20%
growth. Both these sectors should continue to be primary drivers for
real estate in most Indian metros.
With strong occupier
demand pushing up land prices, especially in suburban and peripheral regions of metro and A-1 cities, companies
have realized that this is an opportune time to maximize the value of their
real estate portfolios.
One expects a
consolidation of positions in the next six months in the market as all
developers have stretched their capacities to the maximum. The
market may also see announcements of large projects with financing sourced from
venture real estate funds. Prices are likely to remain firm with prices moving
up marginally in the next two three months.
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