The Hindu Business Line : Indian realty sector emerging global investors' choice: Survey

Survey findings
The demand for office space is set to expand driven by the IT and ITES industry
Rising disposable incomes, financing terms and population rise will continue to drive housing demand in India
The eight largest Indian cities will experience a supply of around 66 million sq ft of new retail space through more than 200 proposed retail centres

New Delhi , Sept. 19

The Indian real estate industry is poised to emerge as one of the most preferred investment destinations for global realty and investment firms in the coming three to five years, according to a survey done by the Federation of Indian Chambers of Commerce and Industry and Ernst & Young.

Growth focus

The focus for growth in the sector will be on product differentiation and quality, geographic de-concentration from metros to smaller cities, shift from regional developers to national developers, consolidation of large Indian business groups and their emergence as market leaders, shift from land transaction to development transaction, change in ownership to leasing, correction in supply format from investor to consumer driven, movement of construction giants up the value chain and the emergence of strong real estate capital market.

According to the study, in the commercial office segment, the demand for office space is set to expand significantly in the next few years, primarily driven by the IT and ITES industry that requires an estimated office space of more than 367 million sq ft till 2012-13. Further, India's improving image, as a regional corporate base for Asian markets and strong growth in emerging sectors such as financial services, pharmaceuticals, telecommunications, and biotechnology will also boost demand and broaden the occupier base. Several upcoming special economic zones are also expected to provide the next generation impetus to the commercial office space development.

Residential segment

In the residential segment, rising disposable incomes, financing terms and increase in population will continue to drive housing demand in India. However, one phenomenon, which is likely to impact the housing market growth in the future is the trend of sub-urbanisation. Another growth catalyst for the residential sector could be the expected supply of prime land parcels in metros due to unlocking of land by leading public sector undertakings, which hold prime real estate assets in several urban centres.

Other segments

As far as the commercial, retail and entertainment segments are concerned, estimates suggest that by the end of 2008, the eight largest Indian cities will experience a supply of around 66 million sq ft of new retail space through more than 200 proposed retail centres. However, the operative fact that is likely to metamorphose the Indian retail market is the further relaxation in FDI guidelines. Though, according to the new FDI guidelines of the Government of India, foreign retailers are now allowed to invest in single brand retail outlets in the market to an extent of 51 per cent participation or through a franchisee route, the market is still restricted for large and multiple format retailers.

However, there are certain factors that could act as an impediment for the growth of the sector. Though the commercial office segment is highly dependant on the performance of the Indian IT-ITES sector, any unforeseen downturn in the performance of IT-ITES industry will have a significant impact on the vacancy levels of the upcoming commercial office space stock in the country.