Real estate is a very important sector and one of the
biggest drivers of economic growth and investments.
The Indian real estate sector can be broadly categorized
as residential, commercial, retail and hospitality. The real
estate demand from the hospitality sector is very modest
compared to the other three segments. While a bulk of
the current real estate demand comes from the residential
segment, retail and commercial segments are expected to
grow much faster over the next few years.
The fast improving quality and opportunity landscape of
the Indian real estate sector has attracted many globally
renowned companies, retailers, architects and planners to
bring their operations in India. As a result, many foreign
investment companies that focus on real estate, like private
equity funds, pension funds and development companies
are drawn to invest in the sector.
Construction development is one of the largest recipients
of FDI and has attracted 11.5 percent of the total FDI
inflows to the country. During the year, the sector attracted
INR 683 million in FDI or 6 percent of the total FDI inflows
to the country.
While the strong structural economic drivers like the
rising income level, increasing mobility of the workforce,
reducing family size, increasing aspirations, easier
access to credit at competitive rates, favourable
demographic and growing urbanisation, have helped in
maintaining the demand of the quality residential spaces,
the cyclical factors like the weakness in economic growth
momentum, high input cost inflation leading to sharp
price appreciation, execution delays and high interest
rates have kept the demand momentum under check
during the last 6-8 quarters.
Despite slow growing demand momentum, most cities
witnessed a slight increase in capital values with a few
cities like Delhi, Hyderabad, Mumbai and Pune witnessing
a double digit increase in prices.
The demand of commercial properties in India is strongly
related to the growth and prospects of service sector,
especially the IT-ITES sector, their net hiring and their future
outlook. As shown in the graph alongside, the IT sector
was the largest office occupier, contributing to 40 percent
of the occupied space.
Since the last two years, the weak growth outlook has
dampened corporate sentiments and impacted their
expansion and hiring plans. There has been a slowdown
in the services sector including IT/ITES and BFSI. As per
NASSCOM, the hiring by the Indian IT sector might reduce
to 1,30,000 – 1,50,000 in FY’14 as compared to 1,80,000 in
FY’13. This is when the IT industry is projected to grow by
12-14 percent in FY’14, better than the 10.2 percent growth
it saw in FY’ 12-‘13.
The weakening sentiments also got reflected in the HSBC
Services Purchasing Managers’ Index, where the services
growth eased for the third straight month to the eighteen
month low during April 2013.
During the period June 2012- Mar 2013, Mumbai, NCR
and Bengaluru together accounted for over 75 percent
of the total supply in the top seven cities. While within the
three regions, Mumbai accounted for almost 30 percent of
the total supply, both NCR and Bengaluru accounted for
around 23 percent each of the total supply.
Demand-wise, for the period June 2012- Mar 2013,
Bengaluru accounted for the maximum demand amongst
the top seven cities, accounting for a little less than 29
percent of the total demand, followed by Mumbai which
accounted for 23 percent of the total demand and NCR
accounting for close to 20 percent of the total demand.
India has one of the largest yet one of the least organised
retail markets in the world. As per a study by Deloitte, over
the next few years while the retail industry will continue to
grow in double digit, the share of modern retail is slated to
increase multifold with its penetration expected to increase
from the current less than 5 percent to over 20 percent by
the year 2020.
Like other real estate segments, the demand in the retail
segment was impacted by the economic slowdown over
the last two years. But the recent government policy
actions including passage of the Bill for allowing 51 percent
FDI in multi-brand retail after permitting 100 percent FDI
in single brand retail is likely to provide a strong fillip to
the organised retail sector and should help increase its
During the year, there was continued expansion in all major
cities by international apparel and F&B retailers. Retail
being a location driven activity, there has been an increase
in competition between domestic and international
retailers in select pockets. Despite the slowing growth
momentum, many international brands including IKEA,
Walmart, Tesco, Carrefour, Pavers, Fossil, Brooks Brothers,
Damiani, Decathlon Sports, Lotus Arts De Vivre, Officina
Farmaceutica Italiana, Le Creuset, Uniqlo and Starbucks
among others have evinced interest to expand their
operations in India.
City-wise, Delhi holds a little less than a third of the total
organised retail assets in India’s top seven cities followed
by Mumbai which holds a little over a quarter.