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The Time is Just Real for Indian Estates/

Indian Estates going Real/


Realty of the (Indian) Estates

India is the world’s largest democratic system by population size, and one of the
fastest growing economies in the world. According
to the CIA World Factbook, India’s estimated
populace was approximately 1.16 billion people as
of July 2009. India’s gross domestic product (GDP)
on a purchasing power parity basis has been
estimated at approximately US$ 3.297 trillion in
2008, making it the fifth largest market in the world.
India has experienced swift economic growth, with
its GDP having grown at an average growth rate of
8.8 per cent between fiscal 2003 to fiscal 2008. This
high growth trail was somewhat impeded in fiscal
2009 with the growth rate of India’s GDP slowing
down to around 6.7 per cent as a result of the global
economic downturn. However, despite the global
economic deceleration in fiscal 2008, India has
continued to be one of the rapidly growing economies and is exhibiting optimistic
signs of recovery following the global financial slump. India’s ability to recuperate
from the global slowdown and its own domestic liquidity crunch has largely been
driven by the country’s large domestic savings and corporate retained earnings, which
have been used to fund investment. Likewise, although urban consumption has
slowed as a result of a recent decline in the labor market and job losses, low export
dependence, large rural consumption and employment have all helped India to sustain
spending, especially in infrastructure and real-estate sectors.

The real estate sector which involves the development of residential housing,
commercial buildings and office spaces, industrial facilities and warehouses, hotels,
restaurants, cinemas, trading spaces such as retail outlets and the purchase and sale of
land and land development rights, is closely associated with the macroeconomic
condition of India.. This sector plays a significant role in the country's economy. The
sector is the second biggest in India in terms of employment generation. Almost 80
per cent of real estate developed in India is in the residential space, the rest comprises
primarily of offices, shopping malls, hotels and hospitals. Almost five per cent of
India's GDP is contributed to by the housing sector.

Growth in recent years in the sector has been driven primarily by the information
technology (IT)/ information technology enabled services (ITeS) sector with an
increase in the demand for office spaces, growing presence of foreign businesses in
India, the global strides of Indian corporates and a rapidly increasing consumer class.
The real estate sector in India is characterised by -
 Domination by a few large national developers having pan-India presence.
 Presence of regional players who are expanding to achieve an pan-India
presence.
 Shift in the type of operations from sale model to lease and maintenance model.

The key factors that affect demand and supply in the real estate sector include -
 Robust economic growth of India
 The earning population of India (persons in the 20-59 age bracket) which is
expected to increase as a percentage of overall population which n turn is
expected to result in greater demand for housing
 Lowering of interest rates by banks and financial institutions is expected to lead
to increased new home purchases, since a large portion of new house
acquisitions are financed through banks and financial institutions.
 Foreign direct investment (FDI) has also been influential in the growth of the
sector since the opening up of FDI in 2005, a significant amount has been
channelled into the housing and real estate sector.

The housing demand in India is expected to increase from 0.8 million units in 2009 to
1.1 million units in 2011, across ten major Indian cities. A large chunk of the demand
for housing, especially in the urban centres such as Mumbai, Bangalore, Delhi
(including Gurgaon, and NOIDA) and Pune, is likely to come from high-rise
residential buildings. Constructions of high-rise apartment buildings are likely to be
driven by the lack of space in cities
such as Mumbai and proximity to
offices and IT parks in places such
as Gurgaon, Bangalore and Pune.
The high-rise way of life is
gradually soaking into other cities
such as Kolkata, Hyderabad and
Chennai due to growing
affordability, nearness to IT and
ITeS parks, and the integrated
township concept being embraced
within immediacy of such IT/ITeS
parks.

The demand for houses is highest for Mumbai region followed by Kolkata. Soaring
development of residential activities is increasingly getting concentrated on outskirts
of ten major Indian cities (as has been stated below) as prime areas these cities are
getting saturated. These ten major Indian cities along with names of their outskirts
which are seeing a burst in real-estate activities include –
Major Indian Cities Prominent Outskirts
Mumbai Thane, New Mumbai, Mulund, Borivali, Kandivali, Andheri
Delhi Rohini, Pitampura, Janakpuri, Dwarka, Sohna Road,
Manesar, Indirapuram
Kochi Kakkanad, Marudu
Kolkata North 24 Parganas, Rajarhat, EM By-pass, Salt Lake, South
24 Parganas,
Chandigarh Mohali, Zirakpur, Panchkula
Pune Hinjeqadi, Hadapsar, Pimpri-Chinchwad
Bengaluru Hebbal, Whitefield
Chennai OMR, GST Road
Hyderabad Hi-tech City, Shamshabad, Shameerpet
Ahmedabad S.G. Highway, Prahlad Nagar, Chandkheda
During the last five years, locations such as Bengaluru, Gurgaon, Hyderabad,
Chennai, Kolkata and Pune have established themselves as budding destinations for
commercial development, and are competing with traditional business hubs such as
Mumbai and Delhi. These emerging hubs have succeeded in matching their
manpower base with necessary skill sets, aggressive business environments, cost
efficiencies and enhanced infrastructure. The contemporary relative position of the
urban growth centers in India may be summarised as follows:
 Metropolitan destinations such as Mumbai, Delhi and Bengaluru have
consistently been the traditional business hubs and have traditionally attracted
investment opportunities. These markets shall continue to be focal points for
specific business sectors and high value destinations for corporate headquarters.
Furthermore, peripheral business districts such as Thane, Navi Mumbai, Gurgaon
and Noida have emerged as cost effective alternatives for large commercial
activities
 Locations such as Kolkata, Pune, Chennai, Hyderabad, Chandigarh, and Mohali
offer cost advantages, developed infrastructure, supportive local governments
and fewer constraints on the supply of real estate. Growth in these emerging
locations is primarily led by the growth and consolidation plans of corporations
in the IT and ITES sectors.

Real estate development companies typically


follow a sale model for their residential projects
and a lease model for office space and retail
projects as they believe that this provides them
with stable cash flows. In case of hospitality
projects however, the most real estate
development companies currently follow an
operating agreement model, whereby the hotel is
typically owned by them and operated by a hotel
chain.

For most residential projects the developers


typically receive approximately 15-20 per cent
of the purchase price as down payment at the
time of booking a particular unit and the
remainder through periodic payments linked to
certain other construction milestones while the
project is being developed. Developers in India
generally launch such projects and commence
the sales process for a portion of the total
number of units to be sold around the time of commencing construction.

The large national developers having pan-India presence generally utilise an


outsourcing model that allows them scalability and also emphasises contemporary
design and quality construction. Such developers in addition to having experienced
and capable design management and project management teams who oversee and
execute all aspects of project development also have strong and long-standing
relationships with external service providers such as architects, landscape planners
and contractors, and typically outsource all of their construction and design works.
This allows then to work with several international architects (such as SCDA
Architects, Singapore and Bentel and Associates, South Africa), and with domestic
contractors (such as Larsen & Toubro Limited) which provide them with innovative
design capabilities and quality construction. The outsourcing model provides the
developers with the scalability required not only to undertake large developments
such as but also to explore opportunities and undertake similar and other
developments in different parts of India.

In recent past several leading real estate development companies have announced
their plans for issuing an initial public offer (IPO); the objects of the issue typically
include:
 Acquisition of land development rights for their forthcoming projects
 Construction of their forthcoming projects
 Repayment of loans

Most leading real estate development companies in India are increasingly focussing
on premium developments, and this is demonstrated by the emergence of innovative
projects through prominence on
contemporary architecture, strong project
execution and quality construction. An
interesting trend that has become visible
off late in the Indian real estate space is
the increasing integration of residential
projects with office space, retail,
hospitality or social infrastructure
projects, as the developers seek to create
“destination developments”, which
enhance the desirability of the residential
units. The emergence of the integrated
township format is another highly visible
trend in the residential sector.
Availability of large land parcels as well
as office developments in the peripheral
areas of major Indian cities are leading to
development of a number of integrated
townships to accommodate the growing
population of these cities. These
integrated townships typically offer integrated development of residential,
commercial, retail, and leisure facilities.

(1500 words)

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