Investment Opportunity in Construction and Real Estate Sector

Real Estate in India
The rising population, rapid economic growth and the continuous demand of improved infrastructure have made real estate and the construction sector, the most lucrative sector. The growth of urban population has led to the building of many residential houses. New commercial centers, shopping malls and entertainment houses are mushrooming in India at a rapid pace. Lots of foreign investments have been made. It is expected that in the next five years nearly $50 billion investment would be made in this sector. The industry is expected to grow with an average growth rate of 30% p.a.

Facts and Figure

According to study, Real Estate and Construction is a $12 billion (by revenue) industry in India
In the past few years, real estate and the construction industry have taken strides

Structure of Real Estate and the Construction Industry

The construction industry and real estate sector has few organized players, many of whom have only a local or regional presence

Big corporate houses are very less in this sector
This is the most profitable venture in India, because as compared to developed countries, the profit of margin is very high here. The profit of margin in India is more than 20% whereas in the developed nation, the profit of margin is 5% to 6%.

Institutional finance in Real Estate has stared recently and is in the formative stage.
Government has allowed the Real estate venture funds. Some of the Indian banks like ICICI Bank, SBI and HDFC have promoted real estate venture funds
There are many foreign Real Estate and Finance companies like GE Commercial Finance, Tishman Speyer, Ascendas and Farallon Capital have entered the Indian market

Major Players of Real Estate and Construction Industry

Government Policy
· Government has permitted 100% FDI in real estate development. However this investment is subject to minimum scale norms which are:

• Either 25 acres in case of serviced plots or integrated townships; or
• 50,000 sq. mtrs. of built-up area for construction development projects
  

Potential

There are many reasons that would help the investors to reap maximum benefits.

1. Population is growing and so is the demand for more houses. The demand of housing is increasing because of the availability of easy loans at a very low rate of interest. Moreover there are many tax incentives that are provided by the government to those who takes housing loans.

2. The rapid growth of Retail, IT/ ITeS and Hospitality sectors have led to the demand for commercial and office space. Recently government has announced Urban Infrastructure Renewal Mission. This is expected to further boost and strengthen this sector.

3. Nearly $11.5 billion has been earmarked over the next five years for 60 cities

4. For every segment of the business, there is an investment opportunity: For example in the next five years, about 20 million new units expected to be built. The growth of IT sector necessitates more office space. The growth of retail sector also requires much Commercial space. By 2010 it is expected that the retail sector may require 200 million sq. ft. Hospital and the Hotel industry is also expanding very fast to meet the requirement of the people.

5. Real estate and the construction industry present the investment opportunity of over $50 billion in the next five years.

6. Morgan Stanley, Merrill Lynch, AIG, Blackstone and Calpers are some of the foreign institutional investors who have shown interest in investing in Indian real estate and the construction industry sector.