4 KEY DRIVERS OF REAL ESTATE GROWTH IN INDIA.
Real Estate refers to land, as well as any physical property or improvements affixed to the land, including houses, buildings, landscaping, fencing, walls, etc.
The key demand drivers of the real estate industry are residential properties, office spaces, retail spaces, hotels, etc.
1) Residential real estate development – Residential property in India is an emerging market. The growth in the residential real estate market in India has been largely driven by rising disposable incomes, rapidly growing middle class, low-interest rates, fiscal incentives on both interest and principal payments for housing loans, heightened customer expectations as well as increased urbanization, and a growing number of nuclear families.
The residential real estate market in India has seen mounting prices. India has been through developments in residential plots, housing complexes, and luxury housing units. The residential real estate developers in India have started the construction and development of residential property, township, and housing projects to cater to the demand for residential property for sale. The residential property developments in India are not restricted to just the metro cities now but also to suburban areas, and villages. Indian residential property is a big attraction for not just the local real estate developers but also the foreign investors, especially for the NRIs.
2) Commercial Real Estate Development – The growth of commercial real estate development in India has been fuelled by increased revenue growth of companies in the services businesses, especially in the IT and ITES sectors. As these sectors continue to grow and generate additional employment, it will result in increased demand for commercial space.
Commercial real estate development is rapidly taking place at all up to growing cities in India and in the developing tier- 2 cities. Most of the corporate houses involved in IT services prefer to establish their offices in such cities due to the cheaper land rate. One reason why the commercial real estate market in India is gaining pace is the international marketing equation. According to the international marketing equation, India is the primary market in the world. This is because of the huge population and wide consumption of this population. Hence the companies interested in property investment in India are plunging into the Indian market to set their foot mark which has given a primary boost to the commercial real estate market.
Major Indian cities underwent strong pre-leasing activity in buildings under construction. Occupiers chose to consolidate their offices by vacating multiple small offices in central business districts and taking up larger areas in secondary and suburban districts instead.
Overall, on a pan-India basis, the demand for office space is expected to expand rapidly in seven major cities (Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, the NCR, and Pune) catering to 75% of the total demand.
3) Retail Real Estate Development – Although the retail real estate segment has the smallest pie in the real estate industry, it is growing rapidly and the demand for good quality mall space is fuelled by the growth in organized retail and the entry of international retailers into India. Over the past few years, retail has become one of the fastest-growing industries in the country. Increasing disposable incomes, rising consumption, and shopping convenience have been driving the growth of organized retail.
The US-based global management consulting firm, A T Kearney, in its Global Retail Development Index 2011, has ranked India as the fourth most attractive nation for retail investment, among 30 emerging markets. The rapid expansion of India’s retail industry also means there is great demand for real estate. Analysts say international hypermarket chains like Walmart, Tesco, and Carrefour — apart from national chains such as Big Bazaar and More — will absorb a large chunk of retail real estate in tier II and tier III cities.
The retail real estate industry is a market which focuses on the development of the retail assets ranging from the land assets to the ends of managing the property for commercial purpose. There is an increase in the emergence of the number of malls in India due to which the shopping lifestyle of people has changed. The growth of organized retail is expected to be driven by demographic factors, increasing disposable incomes, changes in shopping habits, the entry of international retailers into the market, and the growing number of retail malls.
As the sector grows, India will see more organized retail real estate supply as more international retail stores open up and expand.
4) Hospitality industry – Of late, the growth prospect in the Indian hotel industry is transcending the boom to the Indian real estate market. The land prices have been touching new heights as hospitality giants, hunt for land to establish their new hotels. Given the rapid economic development going on in the country, India is likely to become one of the top five destinations for business travelers in the years ahead, says London-based World Travel and Tourism Council. The general increase in room rates and occupancy rates is expected to contribute significantly to the demand for new hotel developments. The hospitality segment has also been witnessing a robust demand, primarily due to strong growth in tourism, including business and leisure travel. According to research conducted by the World Travel & Tourism Council, travel and tourism in India are expected to grow by 12.7% by 2019. India is emerging as a major tourist destination for international tourists.