Indian Real Estate Sector

It’s a fact now that even when the world economy is in doldrums, India though itself a little weak on the growth path, is one of the fastest growing economies today. With a lot of foreign players coming into the Country and the competitive indigenous enterprises, the resources of the Country are being tapped well and cross industry growth is taking place. A perfect example of such industry which is growing hand in hand with all other sectors is the Real Estate industry. Developments in sectors such as hospitality, retail, entertainment and services like education and health care influence developments in the Real Estate sector too. As per Indian Brand Equity Foundation (IBEF), the real estate in India contributes about 5% to India’s GDP.

Mr. Manoj Kumar
Vice President
Not only this, the real estate sector is touted to be the second largest employer in the economy after agriculture. The sector has ample backward and forward linkages with sectors such as housing & construction and hence connections with various ancillary industries like cement and other building material.

What is Real Estate?

Real Estate is the land, including the air above it and the earth below it including any buildings or structures that may form a part. Real Estate includes the activities of purchase, sale and development of land and residential & non residential buildings. The entities involved in the real estate business are: landlords, developers, builders, real estate agents, tenants, buyers, etc.

How is the market categorized?

The Real Estate Industry is broadly segmented into 4 categories: Commercial, Residential, Retail and Hospitality Real Estate. 
The demand for commercial property is on the rise. Thanks to the country’s economic growth. Because of the growth, the urban segment in the population is slowly and steadily expanding. The urban population is expected to cross 590 million by 2030 (Source: here itself, the demand for residential property arises, i.e. because of the increasing household income and the consequent urbanization. 
Now urbanization would bring clusters of such population close which is in a phase wherein many of its luxuries are becoming necessities. To cater to this and its thirst for more choices, there have to be larger stores and hence, the mall culture also blooms which eventually leads to increased demand for retail real estate as well. 
Rising household incomes also increases scope for hospitality real estate as people start seeking more balance between their work and leisure. One wouldn’t be wrong in saying that the economic growth of the Country can boost the demand for real estate in all the segments.

How is the demand trending?

Demand in Real Estate Sector
Though a lot of focus is placed on metro cities by the real estate developers, they are these days flocking to smaller cities because of the growth prospects offered and the comparative price stability vis-รก-vis bigger cities. As per a CRISIL report, the residential property has generated about 4 billion USD in 10 cities beyond the top 10 cities of the Country. 

Applicable Law in Indian Real Estate Sector
Real Estate: A highly regulated sector: The Real Estate sector happens to be one of the most regulated sectors. As per a report by the Ministry of Corporate Affairs’ Committee on National Competition Policy, every real estate project prior to launch has to seek almost 52 odd approvals, a number which could vary from state to state. Some of the many laws that affect a transaction taking place in the Real Estate sector can be seen below:

Apart from some other land related laws, the entities operating in the real estate sector need to be compliant with various environment laws like the Environment Protection Act and the relevant laws for prevention and control of air and water pollution. Depending on the kind of business, the entity might even have to comply with the various construction and labor laws.

The Real Estate Industry providing a myriad of investment opportunities

In the recent times when the Country has been struggling with the ever weakening Indian Rupee against the USD, NRIs have found a reason to rejoice especially in Real Estate.

Before the year 2005, only NRIs and Persons of Indian Origin were allowed to invest in the housing and real estate sectors and other Foreign Investors were allowed to invest only in development of integrated townships and settlements by way of wholly owned subsidiaries or Joint Ventures. The avenues for the foreign investors fully opened in 2005.

Now FDI up to 100% under automatic route is allowed in Housing, Townships, Construction Development and Built up infrastructure. However the investor has to follow some minimum area and minimum capitalization requirements. Moreover the investment is not allowed to be repatriated by the investor before 3 years from the completion of capitalization, an exit is available with the approval of Foreign Investment Promotion Board (FIPB). The FDI policy however expressly prohibits FDI in construction of farm houses or in real estate business (i.e. trading in real estate or Transferable Development Rights).

Government Initiatives

Through the Budget 2012-13, the Government aimed at increasing the investment in infrastructure because the real estate sector is seen as a major industry contributing to the overall economic growth of the country. Government’s efforts were successful to a great extent, especially in increasing investment by more Public Private Partnership. The 12th 5 year plan of the Government focuses on increasing infrastructure so the scope is open for construction companies as far as the Governmental support is concerned. Given the increasing affluence of the Indian families, consequential rise in urbanization and shift of focus from renting to owning a property, the future of the Real Estate Sector looks bright.

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