Nov

15

Commercial Real Estate- Investment Opportunity in India

Filed Under Emerging Sectors, India Business, India Investment Opportunities, India Real Estate, Indian Government, Metros, Tier-2 Cities, Tier-3 Cities 

Merrill Lynch estimates that real estate industry in India will grow to $ 90 billion by 2015. This growth is quite realistic as most experts predict a growth rate in excess of 35% year on year. These numbers are attracting a lot of attention by the investors worldwide and the media nowadays.

Let’s analyze the underlying fundamentals that will provide the impetus to growth.

India’s population is approximately 1.16 billion at present and it is expected to reach 1.4 billion by 2030 and 1.6 billion by 2050. In addition, India’s GDP growth is forecasted to remain around 8% for next decade or more. McKinsey Global Institute just came out with a paper that stated that the Indian middle class will be around 400 million by 2020.

It is important for us to scope out the discussions when we speak about the commercial real estate. I am limiting the scope of this discussion, for sake of convenience, to urban areas of more than 1 million residents as these would focus of majority of activity in terms of commercial real estate.

From a DB research report last year (2006), there are 44 such urban clusters in India populated by more then 150 million people. According to a UNDP projection, degree of urbanization will grow to above 40% by 2030. Projecting the growth of these urban clusters in the same period, we can predict that closer to 450 million people will live in those 44 clusters by 2030.

In this calculation we are not considering the number of cities that will be part of the 1 million plus cluster by then. So the population of major urban clusters is likely to grow by three times in just over next two decades.

Taking a simplistic view, all these people are going to need place to live and all the industries will need more structures to expand in. And then there is the whole auxiliary & retail growth that will be a direct result of increase in prosperity and number of customers. And this will drive the commercial real estate sector for next two decades justifying the boom we are witnessing in present times.

There is good news for the investors. Regulatory authorities are making effort to reduce the regulation and the entry barriers in this sector. Funds targeted for the real estate sector are a good way to begin. Also the relaxation in the norms for FDI (Foreign Direct Investment) is an excellent initiative. Already, the year 2007 has seen substantial increase in the amount of FDI dedicated to this sector.

And two days back, on November 12, 2007, the Reserve Bank of India (RBI) has also authorized forex to be utilized to fund infrastructure projects. Overall, a number of steps are being taken to enable the growth to happen in this sector.

For foreign investors/companies wishing to participate in this Indian real estate boom, the most practical and rapid way is through partnering some Indian company because it will readily provide the ‘must-have’ local insights required to make successful real-estate investments.

Comments

One Response to “Commercial Real Estate- Investment Opportunity in India”

  1. Sam Bell on March 6th, 2008 8:06 pm

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