India Growth Story
Today, India is one of the fastest growing economies of the world.
Expected to be the 3rd largest economy by 2025 and the largest
economy by 2050.
70% of the future employment opportunities will be created in the
India needs Rs.60000 Crores in the next 20 years to meet its
infrastructural needs of approx. 68 cities that will have above one
Needs Holistic development with emphasis on construction and real
“The real estate sector will be the one that writes the Indian growth story”
Evolution of Real Estate
Initially land was used as a tool to hijack a country’s economic
independence and subvert its social processes.
Post independence, Indian real estate sector was unorganized and
disaggregated. Land prices were low because of low demand.
FDI policies were too stringent, defensive and discouraging.
Post liberalization, real estate sector has seen impressive growth
owing to the following Multinational Entrepreneurialism.
Buoyant local stock markets.
With great demand for housing and commercial and industrial
premises for a booming economy, it transformed into one of the
most lucrative sectors in terms of investment and employment
Real estate sector is the second highest in employment generation.
Contributes almost 5% to Indian GDP which is expected to be 6% in
Increase in residential & commercial real estate, hotel accommodation and
IT/ITES sector and rising outsourcing trends have driven up demand for
Rapid growth in retail, hospitality, infrastructure makes it most lucrative
investment area for next 5 to 10 years.
It contributes to country’s infrastructure by buildings, roads, flyovers,
Overall it can be concluded that a unit increase in real estate sector can
generate a fivefold increase in national income.
Residential Real Estate
Traditional mainstay of Indian property market - largely driven by
rising disposable incomes, growing middle class, fall in interest rates,
fiscal incentives, increase in nuclear families and urbanization.
There will be a shortfall of 2.6 crore housing units by 2012.
It is anticipated that India will add another 22 crore people to cities
by 2025 which is going to increase the demand-supply gap in housing
As a result of the immense growth potential in housing, many retail
investors are viewing real estate as an attractive investment option
compared to mutual funds and stocks.
The global recession in 2008 has slowed down the growth in housing
Commercial Real Estate
It mainly consists of office spaces, retail, hospitality, multiplexes and malls.
Demand for commercial properties was 40 mn sq.ft. in 2011.
Driving forces for the commercial real estate:
Increased revenues of service sector companies particularly IT/ITES.
Retail sector is expected to grow at the rate of 25-30%.
Overall increase in room rent and occupancy rates of hotels is expected
to create demand for development of new hotels.
Increase in demand for schools, colleges, hospitals, roads, airports to
cater rapidly growing population.
Education industry and healthcare sector boosted by medical tourism
will create higher demands for commercial real estate.
Government Policies, Regulations and
Government of India has realized the significance of real estate sector and has
given some relaxation of the norms and regulations keeping in view of
- Employment Generation
- Tax Revenues
- Encouraging Investment
In addition to changing the tax tariffs, it has also setup some regulatory bodies.
Some of the key policy decisions taken by Govt. of India are :
Indirect tax – World Contract Tax (VAT)
Activities like Construction of commercial and residential complexes and
renting immovable land are brought under this tax.
Sale of flats attract Stamp Duty up to 10 percent of the sale consideration.
Traditionally, Indian Approach to Real Estate was restrictive.
First Land Reforms bill in 1950 – Land Reform Legislation that abolished
Zamindari, Maheshwari and Ryotwari systems.
Land reforms has become an important issue from 1991 liberalization period.
Current Land Acquisition law for Government :
Allows the government to take over land for a public purpose sometimes
without compensation leading to public acrimony.
This Scenario is causing difficulties in acquiring the lands and many multibillion
dollar projects have been held up for years.
Policy Initiatives by the Govt.
Land Acquisition ,Rehabilitation and Resettlement bill (2011)
Aimed at giving farmers better deal while helping fast track industrialization.
Model Real Estate (Regulation and Development Act)
Seeks to regulate realty sector by casting detailed obligation and duties on the
builders to bring transparency.
National Real Estate Development Council (NREDCO)
Formed to induce transparency and ethics in Indian real estate to transform it
into a matured and globally competitive business sector.
National Land Recordisation and Modernisation Program (NLRMP)
Based on computerization, updating and maintenance of land records and the
validation of titles.
Direct Tax Code
The income from all properties held for earning rentals shall be computed
under the head “income from house property.
Risks Faced by Real Estate Sector:
The time required for liquidity of real estate property can vary
depending on the quality and location of the property.
Regulatory Risks :
The rules, regulations and legalities, demonstration of frequent changes
make real estate sector a cumbersome investment option in India.
Property Marketing Transparency Risks :
Being a market with less than 100% transparency, a strong professional
valuation and regulatory institutions are needed.
Macroeconomic Risks :
Interest rates, inflation and exchange rate risks are amongst the
important macroeconomic indicators.
Land Ownership and Title Issues :
Lack of information and old property related issues also add to the
risks faced by the investors.
FDI in Real Estate
India is the second most attractive
destination for the Foreign Direct
Investments for the years 20082010.(world Investment Report).
However, FDI in real estate is only
1% of the total GDP in India.
Can be improved by liberalizing
the restrictive laws ensuring
transparency in operations and by
confidence building measures in
the foreign investors.
Policy Changes by Govt. to facilitate foreign
Foreign investors other
than NRIs were allowed to
invest only in development
of integrated townships
and settlements either
through a wholly-owned
subsidiary or through a
India fully opened FDI in
real estate. However, a
minimum capitalization of
$10 million for whollyowned subsidiaries and $5
million for joint ventures
Policy Changes Cont.
The department of industrial policy and promotion ,in March 2012,
allowed FDI in real estate in projects in a minimum area of 25 acres.
The finance ministry has allowed external commercial borrowing
(ECB) in realty projects involving integrated townships of 25 acres or
50,000 sq m
In the Union budget 2011-12, FII limit for investment in corporate
bonds having a residual maturity of over five years has been increased
by $20billion, taking the over all limit to $40billion.
Foreign Venture Capital Investors (FVCIs) may invest in real estate
assets, within the framework of SEBI. This has paved the way for
capital infusion into the market and a significant weight of foreign
capital is now chasing Indian real estate
A China Model
Second largest economy in the world and also the most attractive FDI
destination in the world.
•The graph shows the real estate growth statistics in comparison to the
GDP growth and population growth for China and India.
• India holds many similarities with China in terms of the size of the
population, size of the economy, FDI investments etc.
•The contribution to GDP by the real estate sector in China is 11% where
as in India it is approximately 6%.
Lessons from China
Attracted foreign investors.
Brought accountability and transparency in the operations.
Licenses and approvals for construction projects were granted
The Policies and regulations have been framed in order to create
encouraging and effective business environment in the
construction and real estate sectors.
The new Policies have more substantive implications & are
expected to reshape the real estate sector for positive long-term
Stress Laid on regulation of real estate investment demand,
improving the land supply policy & to strengthen the market
Opportunities Vs Impediments
High domestic demand for
Increase in income levels of
Strong economic growth and
Several procedural complexities
for a foreign individual or an
entity to invest.
Serious discrepancies in urban
The opaque nature of business
The bureaucratic processes in
the legislation, archaic rules,
complexities and ambiguities in
Can India Open up?
India requires large amount of capital in real estate industry.
FDI can be encouraged and permissions may be given to
foreign real estate firms to operate in India.
The sector is currently dominated by a very small no of
players & entry of foreign companies will affect the
opportunities of the small and medium real estate firms.
Indian Govt. can permit foreign companies to enter into
lease agreements with the Indian companies or builders for a
specific project for a particular period of time.
The decisions should be taken in after seriously considering
the impact on not just real estate sector, but also on other
sectors and on the Indian economy as a whole.