Investing in Real Estate and Leisure in India
Essay by people • August 13, 2011 • Case Study • 1,344 Words (6 Pages) • 1,846 Views
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Investing in Real Estate And Leisure In India
Real Estate sector in India is booming as demand for offices, residential
properties and retail is surging.
This is due to a number of factors including favorable demographics,
increasing purchasing power, and interesting financing, with tax incentives
granted to finance property, in addition to reforms initiated by the government
to attract global companies.
All this is leading to huge amount of foreign direct investments being
channeled to India, and is intensified by high liquidity worldwide, due to a long
period of loose monetary policy (low interest rate)
Funds are also attracted by high return of around 20-25% on real estate
investments.
Indian real estate market values now are appreciating 30% annually, and total
market value is projected to leap from US$16 billion in 2006 to over US$60
billion by 20101.
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Favorable Demographics
India has a young rapidly expanding population of 1.1 billion, with fast growing
income per capita, which is the most important factor behind the boom in
demand.
In addition to the population increase, less than two third of the housing
stock is deemed adequate, which leaves lots of potential for replacements in
housing.
It is thought that in a very conservative (and unlikely) scenario in which
the average household size remains constant at the present-day level, the
backlog of demand cannot be unwound, and no shifts in quality take place,
each year some 4.8 million housing units would have to be completed up to
2030
It is, however, very likely that the average household size will continue to
shrink in the coming years leading to more demand on housing units.
This is mainly due younger Indians' desire and ability to live outside extended-
family homes.
Rising incomes will also alter the quality of demand which means more
spending on housing per person.
Another positive aspect of demographics is the return of Non-Resident
Indians (NRI) to the country, in line with the outsourcing of high-end jobs to
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India, which is fuelling quality demand for both residential housing and offices.
This, together with the increase in size of millionaires India (about a million),
explains why the highest rate of growth is being achieved in the highest
income bracket.
However it should be noted that the most rapid volume growth in absolute
terms is taking place in the second-lowest income bracket.
Demographics Trends And Real Estate Segments
The United Nations Population Division (UNDP) estimates a 2.5% per annum
increase in the population of the Indian cities in the next 25 years which will
lead it to double by 2030.
There are two clear outcomes to this:
India's cities must gear up to a dramatic increase in size. First, their
infrastructure (schools, roads, airports, seaports etc.) and housing capacities
will need to expand massively, opening prospect of huge investments in these
areas.
Second, the accelerated rate in urbanization throws into particularly sharp
focus the possibility that established centres (i.e. Tier I cities) are already
straining the limits of their capacities, leading to above-average expansion in
the second-tier cities.
Tier I cities comprises the capital Delhi, the financial centre Mumbai and the
IT hub Bangalore.
Tier II consists of the other cities targeted by companies as alternative off-
shoring destinations and now possess a well-trained pool of labor.
The cost advantage of Tier II cities over those in Tier I is estimated at 15 to
20%.
Given the rising costs in Tier II cities in recent years, companies are
increasingly eyeing Tier III cities which should lead to an increase in demand
in both offices and residence.
These are cities with populations of more than a million but are not yet
completely established as outsourcing and off-shoring destinations. They
represent huge investments opportunities.
However prime markets should still perform better than mainstream markets,
but the growth in 2007 will be lower than the previous year
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