India is facing a cyclical downturn in its economy atpresent; but we believe this phase to be a short one.Though recent downturns in investment activity havecontributed to the overall deceleration in manufacturingand construction, this in no way indicates a long-termslowdown. The country's strong economy coupled withexisting domestic demand in the realty sector willcontinue to attract investments. In this paper Cushman& Wakefield Research projects the robust demand of theIndian real estate sector for the next five years,highlighting the current investment scenario with itschallenges and sectoral opportunities.
The country's economy has been growing at an average rate of 8.8% in the last four fiscal years (2003-04 to 2006-07), withthe 2006-07 growth rate of 9.6% being the highest in the last18 years. The industrial and service sectors have beencontributing significantly to this effect. Projections made bythe International Monetary Fund (IMF) earlier this yearindicated that global growth was expected to slowdown to4.1% in 2008 – down from estimations of 4.9% made lastyear, due to intensified market conditions led by the U.S. sub-prime crisis. It is however expected that the strong domesticdemand from emerging markets, such as India and China, willlessen the impact on capital inflows by positively affectingworld economic growth.India's GDP growth for the current fiscal year is expected tobe in the range of 7.5-8.0% which is an impressive figure byitself though down from earlier expectations of 9.0%. This isessentially due to the tight monetary measures that have beencalled in to control the country's inflation rate, which hasreached a 13-year high. The average growth of the economyfor the last five years has been impressive; but such acontinuing growth pattern cannot be predicted for the nextfive-six years, considering the general global economicslowdown and oil price crisis. Though certain economistsargue that India is isolated and 'Decoupled' from globaluncertainties, present market realities indicate otherwise.Despite the global slowdown, India is expected to be thesecond fastest growing economy in the Asia Pacific. India'slong-term growth story continues to remain intact, against thebackdrop of an increase in FDI over the last fiscal year, whichstood at USD 24 billion. According to the Department of Industrial Policy and Promotion (DIPP), the country is
INTRODUCTION
expected to receive USD 35 billion of FDI in the current fiscalyear, with the first quarter having attracted USD 10 billion. Asizeable portion of this FDI inflow went into the real estate andhousing sectors, with services and infrastructure being otherthe recipient sectors.According to ASSOCHAM, currently the domestic real estatemarket in India is expected to be USD 15 billion, of whichFDI contributions are estimated to be less than USD 4 billion.With the gradual relaxation of ceiling in construction spacepermitted to foreign developers, the share of FDI in real estateis expected to increase manifold over the decade. A growingtrend also points to an increasing number of global direct realestate investment deals that are going through India-specificreal estate funds, rather than taking the FDI route.According to Cushman & Wakefield research estimates, thepan-India cumulative demand projection for the real estatesector across office, residential, retail and hospitality isexpected to be approximately 1,098 million sq.ft. by the year2012. The residential segment will continue to drive realestate demand in the country accounting for nearly 63% of thetotal space demand during the period 2008-12. While thedemand for commercial office space is expected to be 243million sq.ft. during this time frame, the retail and hospitalitysegments are expected to constitute 95 million sq.ft. and 73million sq.ft. of this total demand, respectively.
India Snapshot
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Real GDP Growth 2007-08: 9.10%
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Projected Real GDP Growth: 7.5-8.0%
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GDP as per Economic Activity:
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Trade, hotels, transport and communication –12.0%
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Financing, insurance, real estate & businessservices – 11.8%
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Construction – 9.8%
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India ranked #2 in the Global Retail DevelopmentIndex 2008
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