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Home sweet home in India

Expanding industrial and IT outsourcing sector making Indian real estate a delightful treat

DUBAI— The Indian real estate sector looks set for brighter days ahead as the boom in information technology and massive infrastructural developments in the country are fuelling demand for quality housing and commercial projects, attracting both local and foreign investors.

Recent reforms in the country will also help thepropertysector to draw overseas investment in some of the ambitious housing projects launched by leading developers in the country. The Indian real estate is one of the fastest growing markets in the world due to a strong economy, which is predicted to grow between 7.4 per cent and 8.5 per cent in financial year 2011-12.

Thepropertysector will also benefit from large population, income level increase and rapid urbanisation in major cities, as well as growing interest from Non-resident Indians, or NRIs, in the housing and commercial market. In fact, the real estate developers and overseas investors generated the demand for quality projects and pushed thepropertyprices on higher side in past couple of years despite the slowdown in major economies due to global financial crisis.

According to the latest available statistics, overseaspropertysales account for approximately 30 per cent of Indian real estate’s total sales, of which 40 per cent are accounted for by UAE-based NRIs.

The housing construction industry is predicted to achieve double-digit growth this fiscal year, as hundreds of projects are at various stages in top 10 residential real estate investment hotspots in India. These destinations, according to Jones Lang LaSalle Meghraj, include Mumbai, Kolkata, Chennai, Gurgaon, Noida, Pune, Kochi, Bangalore, Ahmadabad and Goa. Properties in the top 10 destinations are in great demand as lot of infrastructural developments have taken place or are in the pipeline. According to the leading developers, 70 to 75 per cent buyers are looking for residential and commercial space in these top 10 destinations.

“Indian real estate will receive up to $8 billion venture capital this year as there is more demand for housing, office and industrial space in the country,” Sankey Prasad, chairman and managing director of SynergyPropertyDevelopment Services, told Khaleej Times on Tuesday. He said present investments in infrastructure are not sufficient to bridge the gap between demand and supply.

“The real estate boom attracts foreign investors and NRIs that will increase project execution through public-private partnerships.”

The Indian real estate sector has seen an unprecedented boom in the last few years. This was ignited and fuelled by two main forces: First, the expanding industrial and IT outsourcing sector has created a demand for office buildings and dwellings in Noida, Bangalore, Hyderabad and Kochi.

Second, the doors to foreign investment are now open and it is considered a significant step in the right direction that will transform the sector in days to come.

Although the prices of residential properties have already peaked in seven major cities namely New Delhi, Mumbai, Chennai, Kolkata, Bangalore, Pune and Hyderabad, non-metros and small cities could still be great destinations for investing in real estate sector. The real estate market is yet in a nascent stage and the scope is simply unlimited. It does not resemble a bubble that will burst. An unhindered growth for the next two decades is almost sure because outsourcing business in the country entails a huge demand for commercial buildings and urban housing besides improvement in infrastructure across the country.

“Indianpropertymarket has revived very quickly as compared to other markets in the world. This is due to strong RBI policies, government planning and healthy credit history,” said Ajay Sachdewa, regional head for Dubai and GCC of HDFC.

Impact of recession

The residential and commercial real estate market also performed well during recession in past couple of years.

“The market took some time to bounce back after the recession. If we compare the prices in 2007 with present situation, it goes up 20 per cent and people are booking houses at this level. This leads us to believe that there is a good demand for quality housing projects and people are ready to pay for it,” Kapil Goyal, Head of International Sales of Nirmal Lifestyle, told Khaleej Times.

He said the housing market in metros like New Delhi, Mumbai and Bangalore has seen an uptrend while there is stability in Tier-II towns. “Another trend that we have observed is that home buyers in small towns are shifting from local players to branded and big players to avoid problems like delay in delivery, non-fulfillment of certain commitments made by the builders,” Goyal said.

Ansal Housing spokesperson Sumit Garg echoed the same views on real estate performance during the recession. “The market has seen several up and down in last couple of years, but the values are stable. At some locations, the prices fell due to correction in the market.”

The original retail market in India is also accelerating as mentioned by Real Estate Intelligence Service division of Jones Lang LaSalle India in its outlook for 2011. “More international retailers to venture into India and retailers will continue to expand beyond Tier-I into Tier-II and Tier III cities,” it said, adding that large number of malls slated to become operational this year.

Overseas marketing

Propertydevelopers are marketing their residential and commercial projects not only inside the country, but also in overseas markets mainly to attract the NRIs. They want to cash in on the boom in the real estate market by offering housing and commercial projects to over five million NRIs based in GCC countries. These NRIs sent approximately $55 billion remittances annually and the majority of this goes to real estate investment for repayment of their home loans.

In fact, a recent survey also showed that 62 per cent of Indians residing in the UAE plan to own their home in India. The survey, conducted amongst 15,000 Indians spread across the UAE, noted that 32 per cent NRIs plan to buy in less than month’s time and looking to grab opportunities at the forthcoming IndianPropertyShow, running from tomorrow until June 18 at the Dubai World Trade Centre. The show provides a good opportunity for the Indian diasporas to own theirpropertyand have a base in their home country.

“The global meltdown, unrest in few parts and job uncertainty may have prompted the NRIs to buypropertyin their home country, India,” Anuj Malik, GCC sales head for Unitech Limited, said.

Another developer said Indian real estate market should be promoted more aggressively in the Gulf region as it offers better returns to investors. He saidpropertysector is bound to grow in years to come and NRIs should invest in the housing market for their own use rather than leverage for short-term gains.

The three-day event, organised by Sumansa Exhibitions, is expected to generate business worth Rs2.5 billion ($58 million) as over 60 leading developers are ready to feature more than 250 mega projects in housing and commercial segments. The leading real estate and construction companies are attending the show to attract the NRIs for investment in their under developed projects in major cities of India.

“Buoyant with the response we received last time, we decided of making the IndianPropertyShow biannual this year. The last show saw more than 17,000 visitors and we expect a similar response this time as well,” said Sunil Jaiswal, Chief Executive Officer of Sumansa Exhibitions, told Khaleej Times.

“We as exhibition organisers are providing a platform to the buyers, investors and sellers. Even the legal and financial consultation is provided by industry experts at the exhibition. We are providing buyers with the facility of meeting over 60 top developers and getting to know about over 250 projects in the short space of time, which otherwise can take months.”

Project status

The developers participating in the show are offering mix of ready, under construction and planned projects. However, the majority of projects to be featured at the show are under construction.

“There are two categories of NRI buyers — investor and end user. An investor likes to enter at pre-launch time and even makes a down payment of huge amount even in commercial properties,” Goyal said, adding that the priorities for an end-user buyer are different as they like to enter at a stage where they can see a building being erected and some houses being sold.

Price range

The developers are offering properties from as low as one million Indian rupees, which is a very much affordable starting range for majority of NRIs working in the UAE and other Gulf countries. The investment requirements depend on the location, the project and the developers.

“The affordable homes is still an important criteria for end users as majority plan to buy within the range of Rs2.6 million to Rs5 million,” according to the developers. They said majority of buyers are interested in buying apartments rather than land.

“The apartments are available for basic cost of Rs3 million approximately and a villa can be owned for Rs15 million depending on the location,” Garg said.

Financing options

The statistics show that NRIs are investing heavily in the Indian real estate to leverage on the growingpropertydemands. Banks and financial institutions offer financing on real estate projects to NRIs at competitive rates because they are considered a safe option because of their disciplined and good repayment capacity. In India, the loan to value percentage is 80 per cent to 85 per cent as compared to 70 per cent in other international markets. It indicates that real estate is considered as a safest and most promising vertical by the banks and financial institutions.

According to a recent survey, about 87 per cent of the buyers require finances from banks and financial institutions, which are willing to offer home loans at competitive interest rates. However, in some cases banks refrain from giving cash down payments to builders if the project is under development.

“Generally, the financing is available for housing sector and the end users easily find good options or avail best offer from the banks to have their own home in India,” according to thepropertydevelopers.

HDFC is a pioneer in housing finance in India and has assisted more than 3.8 million families to own a home of their own, through housing finance. The bank offers the widest range of home loans for residential purpose to NRIs.

“HDFC has made it easier for the Gulf-based NRIs to apply for a loan to HDFC-India. The bank through its office in Dubai and all the GCC countries through service associates, now offers advisory services in real estate finance to NRIs who wish to acquire homes in their home country. These offices will coordinate the entire loan process in India,” Sachdewa concluded.