Indian real estate sector is growing at thirty percent annually. The liberalized urban policy frame work along with a stable home loan rates by Banks helped this growth phase to sustain. The parameters for investment are changing and more FDI is expected to flow into this sector in the coming period.

The Indian real estate sector has witnessed a resounding growth in recent years due to  factors like liberalization of urban policy and increased competition in the home loan segment. Also the booming Indian economy, favorable demographics transition and liberalized foreign direct investment (FDI) regime acted as a catalyst in this growth phase. 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 over all 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 country’s 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%.

According to ‘Housing Skyline of India 2007-08’, a study by research firm, Indicus Analytics, there will be demand for over 24.3 million new dwellings for self-living in urban India alone by 2015. As a result of this, this real estate sector is likely to throw huge investment opportunities. In fact, an estimated US$ 25 billion investment will be required over the next five years in urban housing, says a report by Merrill Lynch.

As far as the commercial property is concerned, the fast growing Indian economy has a cascading effect. The growth will propel the demand for commercial spaces and space for modern offices, warehouses, hotels and retail shopping centres.  More over the demand for commercial office space is led by the information technology (IT) industry and organized retail. For example, it is estimated that the IT and IT’es alone is estimated to require 180 million sqft.  by 2010. Similarly, the organized retail industry is likely to require an additional 220 million sqft. by 2010. This huge demand will spill over to all parts of urban India. Lease rentals have been picking up steadily and there is a strong demand for quality infrastructure. A significant demand is also likely to be generated as the outsourcing boom moves into the manufacturing sector.

With the significant investment opportunities emerging in this industry, a large number of international real estate players have entered the country. Currently, foreign direct investment (FDI) inflows into the sector are estimated to be between US$ 5 billion and US$ 5.50 billion. According to Cushman & Wakefield, foreign investors have raised nearly US$ 30 billion since March 2005 for investing in Indian real estate. 100% FDI is allowed under automatic route in townships, housing, built-up infrastructure and construction development projects (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure) subject to certain guidelines. Leading companies like Carlyle, Blackstone, Morgan Stanley, Trikona, Warbus Pincus, HSBC Financial Services, Americorp Ventures, Barclays and Citigroup are some of the international players who have entered into Indian reality market.  Real estate accounted for 26 per cent of total value of private equity investments, with 32 deals valued at US$ 2.6 billion. And according to industry estimates, another US$ 10-20 billion would pour into the sector in the next three years.

The Government has introduced many progressive reform measures to unlock the potential of the sector and also meet increasing demand levels.

• 100 per cent FDI allowed in realty projects through the automatic route.  
• In case of integrated townships, the minimum area to be developed has been brought down to 25 acres from 100 acres.  
• Urban Land (Ceiling and Regulation) Act, 1976 (ULCRA) repealed by increasingly larger number of states. 
• Enactment of Special Economic Zones Act. 
• Minimum capital investment for wholly-owned subsidiaries and joint ventures stands at US$ 10 million and US$ 5 million, respectively.  
• Full repatriation of original investment after three years. 
• 51 per cent FDI allowed in single brand retail outlets and 100 per cent in cash and carry through the automatic route.

With the economy surging ahead, the demand for all segments of the real estate sector is likely to continue to grow. The Indian real estate industry is likely to grow to US$ 90 billion in by 2015.