The Hindu Business Line : Strong fundamentals propel real estate sector

Room for growth
NHB pegs housing shortage at 45 million units in Eleventh Plan.
Retail space demand seen growing to 200 million sq. ft by 2010.
Office space requirements will increase to 95-110 million sq ft.

S. Shanker

Mumbai, Sept 11 Rising interest rate, oversupply in development phases and project execution are temporary dampeners for the domestic real estate sector that is propelled by strong fundamentals.

Long-term demand drivers such as a sustained GDP growth, rising affordability, population growth, favourable demographics, rapid urbanisation and increasing mortgage penetration, besides an improving regulatory framework are in place, according to equity broking house Prabhudas Lilladher.

The National Housing Bank pegs the housing shortage at 45 million units during the Eleventh Five Year Plan. The urban housing shortage is estimated at 22 million units, which implies an annual demand of 4.5million units.

Retail demand

The size of the retail industry is estimated at $250 billion. The sector is expected to grow at 10 per cent per annum and organised retail is said to form 10 per cent of the total retail market by 2010. This implied a $35 billion share in the segment, which would generate a retail space demand of 200 million sq ft (square feet) by then.

Organised retail currently accounts for three per cent of the industry. However, given the massive expansion plans of domestic retailers, traditional formats are breaking down. Further, opening up of the sector was likely to provide a renewed impetus to organised retail, the broking house said

Office space

The office space market is largely benefited by IT/ITES demand that constitutes 60-70 per cent of the total demand. Assuming an average office space requirement of 100 sq ft/worker implies an additional demand from the sector at 67 million sq ft.

According to Nasscom, the IT/ITES sector currently employs 1.63 million people and would need an incremental 0.67 million professionals by 2010. Going by the demand requirements, this would entail 95-110 million sq ft by 2010.

Ms Neyha Srivastava, research analyst, and Mr Subramaniam Yadav, associate, said given the limited avenues of fund raising, with a number of developers going in for initial public offers and foreign currency convertible bonds, the realty companies’ ability to float REIT (real estate investment trust) structures could prove a significant value enhancer.

An REIT would make it easier for developers to divest rental assets and unlock funds for redeployment elsewhere.

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