Indian Real Estate Report
If the human race wishes to have a prolonged and indefinite period of material prosperity, they have only got to behave in a peaceful and helpful way toward one another. Indians has changed the orthodox mindset of building and designing a house to live in it. A ramification of this is that houses are nowadays counted as a transitory asset. Investing in real estate in India is becoming more expensive with each passing day. The idea of buying a house that will last a lifetime has gradually vanished. The buzzword nowadays is ‘investment’. Both the policymakers and the stock-brokers share a united view in this aspect (although moved by different intentions).
The Real Estate Boom: A genuine Euphoria
Indian real sector has seen an unprecedented boom in the last few years. This was ignited and fueled by two main forces. First, the expanding industrial sector has created a surge in demand for office-buildings and dwellings. The industrial sector grew at the rate of 10.8 percent in 2006-07 out of which a growth of 11.8 percent was seen by the manufacturing sector. Second, the liberalization policy of government has decreased the need for permissions and licenses before taking up mega construction projects. Opening the doors to foreign investments is a further step in this direction. The government has allowed FDI in the real estate sector since 2002. FDI was deemed necessary in the view of making the sector more organized and increasing professionalism farmers. The villages adjacent to the metro cities have experienced sky-rocketing land prices. This has induced farmers to sell their land for good money.
Flashback to the global crisis
If there is a slowdown, it won’t be the first. During the world economic downturn in 2008, India’s developers cut prices and introduced lucrative deals such as subsidized furniture and internet connections. Demand for luxury housing fell 50%, while affordable housing demand fell 10%, according to a May 2009 survey by the Associated Chambers of Commerce and Industry of India. House prices in Delhi fell by as much as 13.08% during the year to H2 2009. Developers refocused on building low-income homes. But India’s economy quickly rebounded, and house prices soon started rising again.
High inflation will slow growth
According to the IMF, economic growth is likely to slow down to around 8% for the full year 2011, down from 10% the previous year. Investment growth slowed to 0.37% in Q1 2011 from 7.8% the previous quarter, due to rising interest rates. Consumer spending growth was 8%, down from 8.6% in the previous quarter. The tempering of growth is also due to the reduction in the fiscal deficit. From a deficit of 5.1% of GDP at the end of March 2011, the government is targeting a deficit of 4.6% of GDP by the end of the current fiscal year in March 2012.
Future Prospects on Real Estate Industry
The real estate market in India is yet in a nascent stage and the scope is simply unlimited. It does not resemble a bubble that will burst. An unhindered growth for the next twenty years is almost sure. This is because the outsourcing business in India is going in great guns and this entails a huge demand for commercial buildings and urban housing besides improvement in infrastructure. The organized retail market in India is also accelerating with players like WalMart, Bharti, Reliance etc. looking forward to make a foray thus stepping up the demand for real estate.
According to former Planning Commission Advisor Tarun Das, a price index for the housing market to track price movement must be incorporated. The government must ensure that there is no shortage of funds. Sebi’s (Securities Exchange Board of India) recent harbinger of permitting real estate mutual funds in both private and public sector will go a long way in attracting funds from small investors who emphasize on certain return. Another impediment that can be eased on the discretion of government is the existing tax laws and other complex regulations relating to multidimensional real estates such as industrial parks and SEZs (Special Economic Zone). RITES (Real Estate Investment Trusts) of the type introduced in U.S., U.K. and Germany should be imitated and explored.