From here on India’s realty looking up

Many factors are channelizing the demand of real estate business in India and will continue to play a key role in the demand upswing in coming years. Let’s find out how, writes Rajendra Kumar Panpalia.

The real estate sector in India is being recognized as an infrastructure service that is driving the economic growth engine of the country, according to industry experts. The Indian real estate market size is expected to touch US$ 180 billion by 2020. According to a latest industry body report, foreign direct investment (FDI) in the sector is expected to increase to US$ 25 billion in the next 10 years from the present US$ 4 billion. 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 also providing opportunities in the real estate sector.

In these testing times, the Indian economy (10th largest economy in the world and 2nd largest based on purchasing power parity) is consistently clocking a growth rate of 8-9% in the business sectors and especially, in the realty sectors (residential, commercial & hospitality).
This is despite severe bottlenecks in the physical infrastructure to bring in the necessary economic reforms.

It is important to note that the following factors are channelizing the demand of realty business in India and will continue to play a key role in the demand upswing in coming years. Between 1995 and 2002, the Indian economy chugged along at an annual rate of about 5 percent, whereas by the end of 2002 the prices had gone through a 20 percent decline. After 2002, as the economy slowly came back on track, the real estate market regained its position sluggishly. Today, with the rising income level and affluent lifestyle of young professionals,
there has been an ever increasing demand for residential as well as commercial projects in the real estate market.

There are three kinds of investors in real estate – low, middle and high income groups. The people belonging to the middle and high income group seek to invest in properties ranging from 50 Lakh – 1 crore and 1 crore and above respectively. But the rising value of stock prices, fund portfolios, soaring gold holdings of individuals has boosted their income levels and lifestyle.

This growth has resulted in a change in the demand for residential housing from the affordable to the premium and luxury segment. Along with that, the appreciation of land prices have multiplied in the past few months, consequently increasing demand for commercial properties. People are looking to buy properties as an investment option expecting high returns.

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