The Indian real estate sector is witnessing a quiet revolution, owing to a flourishing economy and a positive government attitude, which includes a liberalized foreign direct investment regime. The realty sector, which is growing at an amazing 35 per cent, is estimated to be worth US$ 15 billion. It is also expected to grow at 30 per cent annually over the next decade, attracting foreign investments worth US$ 30 billion. This double-digit growth is mainly attributed to the off-shoring business, including high-end technology consulting, call centers and software businesses. The IT and ITES sector is estimated to require 150 million sq ft of office space across urban India by 2010. This will have a domino effect since for every sq ft of developed office area around 10 sq ft of residential space needs to be developed for accommodation of the employees.
Almost 80 per cent of real estate developed in India is residential space, the rest comprising of offices, shopping malls, hotels and hospitals. According to the Tenth Five Year Plan, there is a shortage of 22.4 million dwelling units. Thus, over the next 10 to 15 years, 80 to 90 million housing dwelling units will have to be constructed with a majority of them catering to middle and lower income groups.
After agriculture, the real estate sector is the second largest employment generator in India and contributes heavily towards gross domestic product (GDP). Five per cent of the country's GDP is contributed to by the housing sector. In the next five years, this contribution to the GDP is expected to rise to 6 per cent.
The real estate sector is also responsible for the development of over 250 other ancillary industries such as cement, steel, paints etc. A study by rating agency ICRA shows that the construction industry ranks 3rd among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. A unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as five times. If the economy grows at the rate of 10 per cent, the housing sector has the capacity to grow at 14 per cent and generate 3.2 million new jobs over a decade.
Growth in commercial office space requirement is led by the burgeoning outsourcing and information technology (IT) industry and organized retail. For example, the organized retail industry is likely to require an additional 220 million sq ft by 2010. Moreover, growth is not restricted to a few towns and cities but is pan-India, covering nearly all tier I and tier II cities.
Moreover, market analysis pegs returns from realty in India at an average of 14 per cent annually with a tremendous upsurge in commercial real estate on account of the Indian BPO boom. A significant demand is also expected as the outsourcing boom moves into the manufacturing sector. Further, the housing sector has been growing at an average of 34 per cent annually, while the hospitality industry has been growing at around 10 per cent over the last couple of years.
Apart from the huge demand, India also scores on the construction front. McKinsey report reveals that the average profit from construction in India is 18 per cent, which is double the profitability for a construction project undertaken in the US.