At present, the domestic real estate market is expected to be of US$15bn in which the FDI contribution is estimated around less than US$4bn. Despite real estate market confronting with a temporary depression with interest rates hovering between 12-16%, the Associated Chambers of Commerce and Industry of India (ASSOCHAM) has projected that FDI element in real estate market would increase by about US$21bn to touch US$25bn in next 10 years.
The ASSOCHAM forecast in this regard is based on the fact that since real estate in India would be a hot market, the foreign investors are constantly looking at India for parking their surpluses, as returns on such investments would be quite high in the near future.
Releasing the assessment on FDI’s contribution to the domestic real estate market, ASSOCHAM President, Sajjan Jindal said that in future, higher interest rates would subside and India is likely to scale a GDP growth of over 10% for at least a decade, creating huge space for overseas investors in the real estate sector.
At present, the domestic real estate market is expected to be of US$15bn in which the FDI contribution is estimated around less than US$4bn. The bank credit to this sector by the end of 2007-08 has been estimated at over Rs3500bn which will multiple substantially in the coming years in view of the growth that the sector is expected to register, adds the ASSOCHAM analysis.
Another reason as to why the real estate sector would witness a boom is, that currently the foreign developers could undertake construction activities in a minimum space of 50,000 sq. ft. as a result of which the FDI component in domestic real estate market has been restricted.
The ceiling of 50,000 sq. ft. would be lifted by the Government as it is under constant pressure to increase it so that higher FDI in real estate sector can be facilitated. ASSOCHAM expects the ceiling of 50,000 sq. ft. would be enhanced to a minimum of 2 lakh sq. ft. in the next 10 years in a gradual manner and result in much higher foreign capital absorption.
The only problem the real estate sector is currently confronting is lack of approvals for setting up townships, as there is involvement of the Center and a number of state agencies. In view of ASSOCHAM, as the real estate sector opens up, the multiple approvals will have to be done away with. This will be particularly so because in the Asian region, India is the only country which offers returns ranging between 20-25% on commercial and residential properties as against 15-18% in rest of Asia.
Interestingly, ASSOCHAM has also projected that the foreign investments in the real estate development will come through private equity instead of institutional mechanism. The real estate story in India would grow bigger as the IT sector alone is expected to require about 200mn sq. ft. of space. It is also estimated that in India�s residential sector, the housing shortage is around 20mn units, of which nearly 7mn units are estimated to be in urban India.
The increase in purchasing power and exposure to organised retail formats have also redefined the consumption patterns for dwelling units. As a result, retail projects have been mushrooming in smaller towns and cities. The retail market is likely to grow at around 35% which will again create scope for real estate developers, the ASSOCHAM Chief said.
As per ASSOCHAM estimates, nearly 30mn sq. ft. of organized retail space is currently available. Another 100mn sq. ft. is likely to be added by end of 2008 from over 300 malls. Out of these, 20mn sq. ft. is slated to come up in Delhi and Mumbai.
With the retail sector experiencing a boom, the country is witnessing a spurt in extremely large retail spaces. Shopping malls with over 1mn sq. ft. of space have become the order of the day. About 20 of these are now at various stages of construction. Majority of retailers are now planning to expand within the current city and equally large number of them are willing to open new stories in other cities.
Source: http://www.indiarealtynews.com
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