Role of Real Estate in the Indian Economy

The Indian economy which is one of the most sought after emerging economies of the current century saw its GDP revised in negative direction consistently for the three quarters in the year 2012. The trend is expected to prevail in 2013 as well, though it is expected that the quantum/magnitude will be lower. The Country’s economic environment is expected to improve in 2013 and the global economy is currently eyeing at the Indian economy to get a modest growth overall globally in the year 2013.

If we talk about the real estate we will see a corresponding growth in the sector as in the economy, though a lag in the momentum might be experienced. According to the economists and analysts it is expected that the most tangible benefits of economic improvements on the Indian real estate space, will be seen in the second half of 2013. The average inflation rate moderated to 7.4 percent in the third quarter of 2012, which is comparatively lower than the average CPI which remained at 10.2 percent. The Reserve Bank of India started softening banks’ cash reserve ratio so as to improve the credit situation. With the prime objective of reviving the GDP, easing the liquidity is expected in the first half of 2013.

Also Read about List of Top Real Estate Companies in India.

Lets take a look at the Growth of Residential, Commercial and Retail sectors of Real Estate in India:

1.Residential

If we talk about the property, prices in this segment have breached affordability limits in cities like Mumbai, Delhi and other metropolitan cities. The developers have to factor in the ground realities of the business while debating the lowering of prices in 2013. It was seen that obtaining as many as 57 odd licenses/permissions to begin construction of a project, can take as much as two years which results in heavy rise in the cost of acquisition of land and thus results in the rising cost of project. The year 2012 made it very evident that the properties are not selling at the right prices and the developers do need to recalibrate their bottom lines while still remaining viable as businesses. It is very important at this point to catalyze healthier sales, which could be obtained by offering buyers tangible financial relief, so that innovative payment schemes could be implemented with ease. In order to accelerate the sales, developers offer buyers pre-launch benefits. Most of the cities of India will see an increase in residential launches in 2013.

2.Commercial

In the year 2012, the major cities of Mumbai, NCR-Delhi, Bangalore saw 72.5 percent of the total commercial space absorption. This high percent clearly indicates a forward path in terms of commercial growth. In terms of commercial growth, the metropolitan cities including NCR will continue to be of highest interest for big ticket investors.

3.Retail

In 2013, new organized retail project completions will increase significantly (by 109 percent year on year). Metropolitan cities like Chennai, Kolkata and semi-metropolitan like Hyderabad, Pune will be among the major contributors to this increase. The reason being, a sizeable amount of supply which was expected to reach completion in the year 2012, was halted and pushed to 2013, thus resulting in significant growth/rise in the retail outlets. Also India’s major cities like Mumbai, NCR-Delhi, Bangalore, Chennai, Pune, Hyderabad and Kolkata will see the addition of close to 9.5 million square feet of mall space in 2013 of which metropolitan cities are expected to contribute over 70% of the total retail space absorption. The recent reform accepted by the government of India to allow FDI in multi-brand retail will be a major driving factor for increased activity in 2013. The policy has opened ways for MNCs to capture Indian market, thus leading to a major transformation in the organized retail sector.

Compare the state of Indian Real Estate with Japanese Real Estate.

Conclusion

The benefit to the real estate due to the much awaited FDI decision, will not become fully evident in 2013, as it will take mall developers at least two years to incorporate the design elements and dimensions required to meet global standards. Apart from the growth seen in the demand of malls for the retail chains, back-end retail infrastructure such as logistics and warehousing (both of which are critical growth catalysts for the retail sector), will receive a significant boost from FDI policy.

At last, the Direct tax Code or the DTC which is deferred to 2015, by the Government and is expected to change the entire financial landscape of India will result in a good portion of the office space demand for IT SEZs to spill over from 2013 to 2014. Thus, to conclude we can say that the demand of real estate remains healthy owing to the DTC, which is deferred and also the implementation of FDI for the coming few years.

Quiz time on GWI!