Real Estate Industry in India

Last Updated: February 2013 Introduction The Indian economy has witnessed robust growth in the last few years and is expected to be one of the fastest growing economies in the coming years. Demand for commercial property is being driven by India's economic growth. The sector is not only the biggest contributor to gross domestic product (GDP) of the country but is also the fourth largest sector in terms of foreign direct investment (FDI) inflows in the country. The two main reasons responsible for boom in the real estate industry in India include liberalisation of Government policies, which has decreased the need for permissions and licenses before taking up mega construction projects and the expanding industrial sector. Urbanisation and increasing household income are some of the major factors that influence demand for residential real estate and growth in the retail sector. Market Size/ Growth Prospects The Indian real estate market size is expected to touch US$ 180 billion by 2020. Infact, the demand is expected to grow at a compound annual growth rate (CAGR) of 19 per cent between 2010 and 2014, with tier I metropolitan cities projected to account for about 40 per cent of this. Growing infrastructure requirements from sectors such as education, healthcare and tourism are providing numerous opportunities in the sector. Further, India is going to produce an estimated two million new graduates from various Indian universities during this year, creating demand for 100 million square feet of office and industrial space. In addition, presence of a large number of Fortune 500 and other reputed companies will attract more companies to initiate their operational bases in India thus, creating more demand for corporate space. Investments Foreign investors are looking forward for investment in Indian real estate industry with the dollar appreciating in value compared to the rupee in the recent times. Construction development sector (including townships, housing, built-up infrastructure & construction-development projects) has attracted a cumulative FDI worth US$ 21,765.55 million from April 2000 to November 2012. FDI flows into the construction sector for the period April-October 2012-13 stood at US$ 691 million, according to the Department of Industrial Policy and Promotion (DIPP). India needs to invest US$ 1.2 trillion over next 20 years to modernise urban infrastructure and keep pace with the growing urbanisation, as per a report released by McKinsey Global Institute (MGI)-India's urban awakening. Some of the major investments in the Indian real estate sector are:

Mumbai-based Wadhwa Group to invest Rs 9 billion (US$ 165.32 million) to Rs 10 billion (US$ 183.63 million) to develop 1.6 million square feet of office space in Bandra Kurla Complex, a financial district in Mumbai. The project will consist of two office towers and is due to be completed by 2014 Bengaluru-based Embassy Property Developments is in talks with global financial services group, JP Morgan to raise Rs 500 crore (US$ 91.83 million) for two projects in the city - premium villa project and a IT-cum-residential development on Bellary Road Kochi-based Asten Realtors has proposed to invest Rs 1,000 crore (US$ 183.66 million) in the next three years in various projects in central Kerala. The company announced an integrated township project at the suburban Kakkanad, the State's IT hub, with an investment of Rs 480 crore (US$ 88.17 million) One of the biggest real estate firms, Avalon Group has made the initiative to start up Rs 200 crore (US$ 36.73 million) project named "Avalon Regal Court" in Bhiwadi, Rajasthan. The project is being planned on a twelve-acre space consisting of eight hundred housing units and is expected to be completed over the next three years Blackstone, a global private equity firm, also pumped in Rs 135 crore (US$ 24.79 million) in a special purpose vehicle to develop a residential-cum-retail project on a 14-acre plot in Hebbal and Rs 540 crore (US$ 99.19 million) in Manyata Embassy Business Park (Bengaluru) - the country's largest operational

tech special economic zone Government Initiatives

The Government of India has allowed FDI up to 100 per cent under the automatic route in townships, housing, built-up infrastructure and construction development projects to increase investment, generate economic activity, create new employment opportunities and add to the available housing stock and built-up infrastructure The Union Budget 2012-13 gives major thrust on accelerating the pace of investment in infrastructure, as this is critical for sustaining and accelerating an overall growth. Efforts to attract private investment into infrastructure through the Public-Private Partnership (PPP) route have met with considerable success at both Central Government and State Government levels The Reserve Bank of India (RBI) has granted permission to foreign citizens of Indian origin to purchase property in India for residential or commercial purposes The government is also committed to introducing FDI in multi brand retail, introduce changes in the existing SEZ policy to resurrect developer interest and expand the role of the private sector in infrastructure development Further, the Government of India has proposed one per cent TDS (tax deduction at source) on transfer of immovable property if the sale value exceeds Rs 5 million (US$ 91,825.77) in urban centres and Rs 2 million (US$ 36,730.63) in other areas in the Union Budget 2012-13

Road Ahead The year 2012 has seen maximum number of steps taken by the Government to boost real estate sector. As a result, developers believe that 2013 would be a positive year for the sector. "We are expecting 2013 to be more robust compared to the past few years based on the Government's impetus on the infrastructure development including the Mumbai Metropolitan Region; coupled with positive steps taken by the Centre to find concrete solutions for issues in the industry," as per a spokesperson, Kalpataru, one of the leading real estate development groups in India. The real estate industry in India is yet in a promising stage. The sector happens to be the second largest employer after agriculture and is expected to grow at the rate of 30 per cent over the next decade. Further, the sector is set for robust inflows of US$ 4-5 billion from overseas investors in the next couple of years, with Bangalore, Delhi and Mumbai emerging as the favourites, as per Jones Lang LaSalle, a global real estate consultancy giant. Emergence of nuclear families and growing urbanisation has given rise to several townships that are developed to take care of the elderly. With a number of senior citizen housing projects been planned, the segment is expected to grow significantly in the future.