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Demand Supply of Real Estate

Demand Supply of Real Estate

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Published by dipi_agl

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Published by: dipi_agl on Jul 25, 2009
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11/29/2012

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Introduction
The Indian real estate sector has witnessed a revolution, driven by the booming economy,favourable demographics and liberalised foreign direct investment (FDI) regime. Growing at ascorching, 35 per cent the realty sector is estimated to be worth US$ 15 billion and anticipated togrow at the rate of 30 per cent annually over the next decade, attracting foreign investmentsworth US$ 30 billion, with a number of IT parks and residential townships being constructedacross-India.This substantial growth has been the result of increasing demands from off-shoring businesses.Off-shoring consulting houses and call centres have generated demand for real estate to theextent of more than 10million sq.ft. Every year, 78 percent of the money spent on real estate goesto the GDP (Gross Domestic Product). About 80 percent of the real estate development in Indiahas been in the field of residential housing. The remaining 20 percent of the real estate includesoffice, shopping malls, entertainment centers, hotels, multiplexes and hospitals.What prompts an average person to try his fortune in the real estate sector? The reasons arenumerous, the first and foremost being the myth that the real estate business is riskless. Thesecond reason is the growing Indian middle class with a low propensity to consume and more botheration about future. Thirdly,the ever growing housing needs fueled by low interest rate.Last but not the least, herd behaviour leading to the 'keeping up with the Joneses' notion i.e.investing in the sector where everywhere else does can also be cited as one of the importantfactors leading to heavy investment in this sector.
Overview
The Indian economy has transformed substantively over the last two decades, growingconsistently at an average of 8 percent and is poised to take place among the leading economiesin the years to come. The economic performance of India has provided strong impetus to the realestate sector, which has been witnessing heightened activity in the recent years. Substantial endusers and investor interest, large scale investment in infrastructure and rapid urbanization havecontributed to the growth trajectory of Indian real estate. The real estate growth story is clearlyvisible in urban centres such as Delhi, Mumbai and Bengaluru which have acquired globalcharacter and recognition. Growing at a rate of 30 per cent, the real estate sector has emerged as
 
one of the fastest growing investment areas for domestic as well as foreign investors. The sector will remain as a booming sector and more investment is expected in the coming years.Construction and allied sectors are considered as one of the largest employing sector in India(including construction and facilities management). This vital sector is linked to about 300ancillary industries like cement, brick and steel. So this sector has a strong backward andforward linkages and the growth will translate into an overall positive impact on these ancillarysectors too. Resultantly, a unit increase in expenditure in this sector has a multiplier effect andthe capacity to generate income as high as 4.5 times.According to Mckinsey report the average profit from construction in India is 18%, which isdouble the profitability for a construction project undertaken in the US. Five per cent of thecountry’s GDP is contributed by the housing sector. In the next three or four or five years thiscontribution to the GDP is expected to rise to 6%.According to ‘Housing Skyline of India 2007-08’, a study by research firm, Indicus Analytics,there will be demand for over 24.3 million new dwellings for self-living in urban India alone by2015. As a result of this, this real estate sector is likely to throw huge investment opportunities.In fact, an estimated US$ 25 billion investment will be required over the next five years in urbanhousing, says a report by Merrill Lynch.
Scope:
"If the human race wishes to have a prolonged and indefinite period of material prosperity, theyhave only got to behave in a peaceful and helpful way toward one another." -Winston Churchill.The heresy of typical Indians has changed the orthodox mindset of building and designing ahouse to live in it. A ramification of this is that houses are nowadays counted as a transitoryasset. The idea of buying a house that will last a lifetime has gradually vanished. The buzzwordnowadays is 'investment'. Both the policymakers and the stock-brokers share an united view inthis aspect.The second largest employing sector in India (including construction and facilities management),real estate is linked to about 250 ancillary industries like cement, brick and steel through backward and forward linkages. Consequently, a unit increase in expenditure in this sector has amultiplier effect and the capacity to generate income as high as five times. The scope of this project is to analyze the demand/supply pattern in the Indian real estate industry. Also, it willgive you a detailed insight to the impact of the real estate industry on the Indian economy.
 
Objective:
Analyze Demand dynamics of the Indian Real Estate Industry.
The supply analysis of this Industry.
Current Scenario
Analysis of the real estate market in certain regions of India
Impact of the economy of the country on the real estate industry
FDI in real estate
Economic role of the Government: Its effect on the Indian real estate industry.
Methodology
We have collected s
econdary data
from journals, magazines, newspaper articles and theinternet. Thereafter we have analyzed the data to find out the following:-
Demand and supply pattern of the real estate industry in India,
Factors affecting the demand and supply of real estate
Impact of the economy on the real estate industry
Current scenario and future prospects of the industry.
Limitations
Due to time constrain we have relied only on the secondary data taken from internet andnewspaper articles. We have taken the demand and supply conditions of certain regions of thecountry which we believe are the major contributors of this sector. Our analysis is based on thedemand and supply prevailing in these regions.

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