Growth drivers
The propellants for the real estate sector are:
- Growth in the country's middle class creates a huge demand for housing.
- India has the second largest population in the world and the growth rate of population is still rapid.
- FDI has increased significantly which increase commercial space requirements by foreign firms.
- Organised retail sector is in the expansion mode.
- Financing for real estate is getting easier seeing its huge growth.
India has displaced US as the second-most favoured destination for FDI in the world. India receives more than $8 billion as FDI in real estate sector this year. The largest FDI in India is from Emaar-MGF for projects with a capital outlay of $4 billion. DSP Merrill Lynch, Barclays Bank and Mauritius-based TH Holdings and groups have so far invested Rs 11, 460 crore in real estate in India. Wall Street powerhouses such as the Blackstone Group ($1 billion) Goldman Sachs ($1 billion), Citigroup Property Investors ($125 million), Morgan Stanley ($70 million) and GE Commercial Finance Real Estate ($ 63 million) have invested in Indian realty sector. In mid-2007, Morgan Stanley sealed a $150-million deal with Oberoi Constructions. The Nakheel Group in Dubai entered into a $10-billion deal with DLF for residential projects in Tier I and II cities.
Housing projects: Several factors, including rapid population growth, rising incomes, emergence of nuclear families, tax incentives, availability of home loans at competitive rates, are responsible for the growing demand for houses and hence extensive residential construction. There is currently a shortage of around 20 million units and the demand is expected to rise in the forthcoming years. The current scenario is very conducive for investment in the housing real estate sector.
Real estate is a highly fragmented sector with only a few organised players. Most real estate developers have only a local or regional presence and there is moderate participation from big corporates till now. The top players in the real estate and construction industry are Omaxe, Unitech, Hiranandani, DLF and Ansal group.
Investment opportunities:
Investment opportunities exist in the following:
- Residential Complexes
- Office/ Industrial Complexes
- Commercial Space for Organized Retailing
- Hotels and Hospitality Sector
- Special Economic Zones
- Venture Funds
Positives:
The growth also depends on the policies adopted by the government to facilitate investments mainly in the economic and industrial sector. The new stand adopted by Indian government regarding foreign direct investment (FDI) policies has encouraged an increasing number of countries to invest in Indian properties.
The Indian government is following China's growth strategy, by promoting SEZs and industrial parks, offering various tax and duty holidays to developers or units setting up base in these zones. The government has indicated that tax holidays and other benefits could be discontinued for industrial parks from 2009.
Commercial and private rents have also soared. The price of office space has climbed by 55 per cent in Mumbai in the past year, making it the second costliest office market in the world after London. Main positive factor for the growth is the expansion plans of technology majors, big retail players and other commercial parties.
Negatives:
The Government's post-budget move is quiet negative towards real estate. Service tax is been extended in renting of properties to the commercial and business purposes; this will have a negative impact towards the market. Construction costs are marginally up because of the increase in excise duty on cement, which is an important raw material. Increase in infrastructure spend, increase in highways outlay, marginal increase in allocations for Jawaharlal Nehru National Urban Renewal Mission are all indirect positives.
Future projects:
- Omaxe forays into SEZ development, by signing MoU with the Government of Rajasthan to develop a multi product SEZ in Alwar district of Rajasthan spread over the area of 5000 hectare.
- SVP Builders India Ltd., a Rs 2000-crore real-estate development company announced the launch of 'Gulmohur Gardens', a sprawling residential complex, with a targeted revenue of Rs 200 crore ($50 million), from 700 dwellings near Ghaziabad.
- Simplex Infrastructures Ltd plans to construct a largest marine project at Kochi.
- DLF Ltd has attracted participation of private equity real estate funds in its township projects by diluting 49% equity stake at a premium, in seven residential projects to a Merrill Lynch & Co entity for a consideration of Rs 1481 crore.
- GTL Infrastructure Ltd has signed a MoU with IDFC Project Equity Company Ltd to form a Special Purpose Vehicle (SPV) that shall address the Telecom Tower Infrastructure acquisition opportunities.
- Bahrain-based Gulf Finance House (GFH) is investing over $ 2 billion in a greenfield site close to Navi Mumbai, near to the commercial capital's airport. GFH has already raised $ 630 million towards the initial development and infrastructure requirements of the project.
- Real estate developer Vipul plans to invest Rs 13,000 crore in the next five years to expand from its base in North India to other markets in the country. The major investment will go towards developing its existing land bank.
- Nagarjuna Construction Company Ltd has announced that Infrastructure Development Department, Government of Karnataka, has selected a consortium of Maytas Infra Ltd (Maytas), NCC Infrastructure Holdings Ltd., (A 100% subsidiary of the Company) and VIE India Project Development and Holding LLC (VIE) to develop and operate airport proposed at Gulbarga and Shimoga on BOT basis.
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