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Pradismshift in real estate sector

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  • 1. Paradigm Shift In Growth Of Real Estate In India Ashok Sengupta Asst Professor , Institute Of Environment & Management J_leo8025@rediffmail.comAbstract :The real estate sector in India assumed greater prominence with the liberalization of theeconomy, as the consequent increase in business opportunities and labour migration led to risingdemand for commercial and housing space. From 43% in the fourth quarter of 2009, supply inthis segment will come down to 8% in the same period of 2013.. This sector is the second largestemployer in India, after the agricultural sector. The recent approval of FDI in multi-brand retailby Parliament will attract foreign investment , which will not only benefit the retail industry butalso boost the demand for commercial real estate.Having attained maturity, the real estate sectoris attracting huge investments, especially (Foreign Direct Investment) FDI. Today, real estate inIndia addresses the demand for built-up space, from a variety of property segments such asoffices, residential units, shopping malls, hospitality industry, manufacturing sector and logisticsparks, to name a few. The real estate sector is also active in the establishment of SEZs and thebuilding of townships; it is spreading to the smaller cities and underpins their growth.Infrastructure developments closely parallel real estate developments.This paper presents a panoramic view of the operations of Indian real estate sector in variousproperty segments, the challenges faced by the sector and its prospects.Key words : FDI, real estate, SEZs, 1
  • 2. Introduction :More than 60 years after India became a Republic , the country has been phenomenal changes. Ithas gained recognition globally as a major player in the world economy. This is also reflected inthe journey of the Indian real estate sector. The country witnessed a tremendous housing boom,specifically in the last decade. The metropolitan cities continues to remain in demand, even TierII and Tier III cities are fast gaining momentum on account of their commercial and strategicviability.The real estate sector is a critical sector of our economy. It has a huge multiplier effect on theeconomy and therefore, is a big driver of economic growth. It is the second-largest employment-generating sector after agriculture. Growing at a rate of about 20% per annum and this sector hasbeen contributing about 5-6% to India’s GDP. Not only does it generate a high level of directemployment, but it also stimulates the demand in over 250 ancillary industries such as cement,steel, paint, brick, building materials, consumer durables and so on.The Indian real estate industry has been on a roller coaster ride since 2005. Consequent to thegovernment’s policy to allow Foreign Direct Investment (FDI) in this sector, there was a boom ininvestment and developmental activities. The sector not only witnessed the entry of many newdomestic realty players but also the arrival of many foreign real estate investment companiesincluding private equity funds, pension funds and development companies entered the sectorlured by the high returns on investments. The real estate sector has been riding through manyhighs and lows since then. The industry achieved new heights during 2007 and early 2008,characterized by a growth in demand, substantial development and increased foreigninvestments. However, by mid 2008, the effects of the global economic slowdown were evidenthere too, and the industry took a ‘U’ turn. FDI inflow into real estate dropped significantly andwhat had emerged as one of the most promising markets for foreign investments experienced adownturn. India’s otherwise vibrant and thriving real estate sector currently pretty much mirrorsthe state of the economy. Sales have dropped, margins are under pressure and both high interestrates and fund availability are stumbling blocks.At the same time, the opportunity is immense and a helping hand in the upcoming budget cangive a much-needed fillip to the construction industry. When housing projects take off, it has a 2
  • 3. rub-off effect on a number of other industries like cement and steel and generates both direct andindirect employment.According to estimates, there is a shortage of 1.87 crore houses in urban areas. Assuming aconservative cost of `20 lakh for each dwelling, we are looking at a gargantuan investment.Between 2001 and 2011, the number of towns have increased from 5,161 to 7,935; districts from593 to 640 and urban population from 1078.73 million to 1,210.20 million, he said.The 12th Five-Year Plan seeks to step up investment in urban infrastructure; strengthen urbangovernance; augment soft infrastructure (system); besides renewing and giving more prominenceto regional planning.Objective Of Study 1. To understand real estate sector of India 2. To analysis of future prospects of this sector.Research MethodologyThe researcher has adopted analytical, descriptive and comparative methodology for this report;reliance has been placed on books, journals, newspapers and online databases and on the viewsof writers in the discipline of Competition law.Growth In Real Estate SectorIndia real estate companies have increased in number in recent times due to the boom in the realestate sector itself which again was a function of the information technology boom in India in thelast few years, accompanied by the growth of the Indian economy at 8%.. The soaring prices ofreal estate in India have led to corporate attention to this sector, with a number of India realestate companies jumping onto the real estate bandwagon in recent years. The demand forproperty is constantly getting steeper in India and as a result, the growing numbers of real estatecompanies in India comes as no surprise. 3
  • 4. Infrastructure development in India has assumed mission mode as a critical prerequisite forsustaining growth momentum. More importantly, investment in infrastructure as a percentage, ofGDP increased from 4.9% in 2002-03 to about 7.2% in 2011-12 and is expected to reach 10%GDP by 2016-17.Causes Of Growth • Public Private Partnerships (PPPs) have emerged as a successful catalyst for the implementation of various commercially viable infrastructure projects in many sectors. Around 37% of the total infrastructure investments during the last Five years plan. • Potential causes : In March 2005, when the current UPA government decided to liberalize foreign direct investment norms in real estate on Feb 26, 2005, introduced the SEZ Act in 2005, and allowed private equity funds into real estate. Other key factors that contributed to this tremendous growth were ‘lower price’ which attracted buyers and investors not only from India but NRIs & Foreign funds also deployed money into Indian real estate market. These new rules ensured that Indian money stacked in Switzerland and other tax havens can be brought back to invest in high yielding Indian property market, away from low-yielding dollar assets. Other evidence that the Indian Property Market may be in a bubble is the Adarsh Scam, where politicians and property developers were in collusion to hoard property to ensure that the property would be sold to users at high rates.Recent development in real estate sectorAL ATEResidential real estate industry has witnessed stupendous growth in the past few years owing tothe following reasons:• Continuous growth in population• Migration towards urban areas• Ample job opportunities in service sectors• Growing income levels• Rise in nuclear families• Easy availability of finance 4