Real Estate – An industry in transition
Real estate in India, though fast growing, is still a nascent industry that offers immense scope, says Atanu Kumar Das.
The numbers say it all.
The Indian real estate industry, valued at about US$ 12 billion, ranks second in the world, after the United States, in terms of contributing to Gross Domestic Product (GDP) and generating employment. Presently, real estate accounts for about five per cent of India’s GDP; in the next five years its share is expected to rise to six per cent. It is also the second largest employer in India after agriculture.
According to some real estate firms, employment generation has grown two-fold in the last two to three years. “Five years ago, we used to do two to three projects at one time, but now things have changed and we are doing 15 to 20 projects at one time and this means we require more manpower and mostly we need people at the middle management and senior level who can drive the project. I feel that since the demand supply ratio is still skewed, we will witness lot of more real estate projects taking place across the country,” said Rajeev Talwar, Group Executive Director, DLF.
What’s driving Real Estate?
Real estate in India, though it is a fast growing vertical, is still a nascent industry that offers immense scope. Though it may see spikes and trenches in keeping with the trends of the past few years, it holds out the prospect of unhindered growth over the next two decades:
• Real estate thrives on growth of national infrastructure and is fuelled by the Government of India’s thrust on infrastructure development. In last year’s budget the Indian government outlined an investment of Rs 1,73,552 crore for infrastructure development, in its bid to attract investment from the international community.
• India’s fast paced growth in recent years – including its success as an outsourcing hub in various fields like banking, finance, information technology, high-end information technology-enabled services (ITES) & consultancy services – has given a boost to the demand for commercial space and urban housing. Despite weakening global sentiment, given India’s growing population, there will be no slackening in the demand for housing.
• Liberalization policies have simplified the investment process by reducing the need for permissions and licenses for large scale construction projects. The government has opened its doors to foreign investment, which has given a further push to the development of the real estate industry in India.
• Organised retail in India is also accelerating with players like WalMart, Bharti & Reliance as well as multinational retail players making their foray into retailing and thus stepping up the demand for real estate. This has led to capturing of prime retail locations in metro cities as well as Tier I & II cities. Real estate firms that were earlier invested into the residential segment have recognized this opportunity and ventured into commercial real estate. Moreover, if FDI into multi-brand retailing does go through as planned, it will be a boon for the realty industry.
On the other hand…
Though seeming unstoppable, the real estate sector faces two key challenges. According to real estate analysts, one key concern is that the realty market is still an unorganized one and lacks a transparent pricing mechanism. The government needs to step in and appoint a regulator to ensure fair pricing in markets across the country. The silver lining: the Ministry of Urban Development is working on the first draft of bringing in a regulator for this sector that will ensure fair pricing across the country, boost consumer confidence and facilitate transactions.
Another concern that looms over the sector is that of the recent Repo rate hikes by the Reserve Bank of India. The Central Bank has raised the repo rate – interest rates at which it gives loans to banks – 13 times in its bid to control raging inflation in India, before finally pausing last week. However, the impact of successive rounds of increases is yet to play out.
Reacting to the repo rate increases, Mr. Lalit Kumar Jain, president of the Confederation of Real Estate Developers’ Associations of India (CREDAI) said, “It has come as a shock to the realty industry as it would hit developers as well as home buyers.” Moreover the cost of materials for manufacturing has increased by over 40 per cent and the wages of labour have also doubled during the last three years. The increases in repo rates and spiraling costs have hit builders who will most likely pass the burden to consumers and dampen the demand for housing.
Most of the real estate companies, be it big or small, have been growing at 20 to 35 per cent on a yearly basis and this clearly shows the immense demand which persists in this market. While national real estate developers like DLF, Unitech, Emaar MGF, Jaypee Greens, Tata Housing, Ansal API, Ansal Properties have carved out a name for themselves, regional players, too, have grown from strength to strength. These include Omaxe, Parasvnath Developers, Assotech, Amrapali, Housing Development & Infrastructure Ltd, Purvankara, Supertech, Orior Developers, Tulip Infratech, Lodha Developers, Mantri Developers, Nitish Estate, HM Constructions, Bengal Ambuja Housing Development, Purvanchal Construction Works, Ashiana Homes to name a few. Projects like the Delhi Mumbai Industrial Corridor will bring real estate development to this zone and in the coming years will be a major contributor for the real estate sector.
The Indian real estate today offers potential for tremendous career growth and enhancement. However it is still in a stage of transition from a relatively unstructured industry to an evolved one in keeping with its counterpart in more developed countries. While this will pose challenges, it will reward those who have the mettle to take it on.
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About the Author: Atanu Kumar Das is a business journalist.