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 will provide 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 supply in 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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