The overseas investments will also be finding larger space in Indian SEZs and increasing number of shopping malls that will naturally fatten their share in real estate market, adds findings of the `Study on Future of Real Estate Investment in India’ brought out by ASSOCHAM.

It says that currently, real estate market is growing @ 30%  per annum and offering maximum returns to investors. The domestic real estate market which is presently estimated at US$ 16 billion will increase by over by 3½ times and touch US$ 60 billion by 2010.

Since, ASSOCHAM expects cut throat competition to emerge between domestic and overseas investors in real estate, the Study forecasts that of estimated US$ 60 billion future market size of real estate business in India, the share of foreign investments will be within the range of  US$ 25-28 billion by 2010.

In 2003-04, India received total FDI inflow of US$ 2.70 billion, of which only 4.5% was committed to real estate sector. In 2004-05 this increased to US$ 3.75 billion  of which, the real estate share was 10.6%.

However, in 2005-06, while total FDIs in India were estimated at US$ 5.46 billion, the real estate share in them was around 16%. The Study, nevertheless projects that in 2006-07, total FDIs will touch about US$ 8 billion in which the real estate share is estimated to be about 26.5%.

Year	FDI	Share of real estate in FDI
2003-04	2.70	4.5%
2004-05	3.75	10.6%
2005-06	5.54	16%
2006-07  * (estimated)	8.00	26%   *

Commenting on Study, ASSOCHAM President, Mr. Anil K Agarwal said, leading international investors like Royal Indian Raj International, Blackstone Group, Goldman Sachs, Emmar Properties, Pegasus Realty, Citigroup Property Investors, Lee Kim Tah Holdings, Salim group, Morgan Stanley and GE Commercial Finance Real Estate are showing keen interest and establishing their  presence in domestic real estate business.
 

Companies	Overseas Real Estate Investors Plan (in US$ )
Royal Indian Raj Intl’	2.9 billion
Blackstone Group	1 billion
Goldman Sachs	1 billion
Emmar Properties	800 million
Pegasus Realty	150 million
Citigroup Property Investors	125 million
Lee Kim Tah Holdings	115 million
Salim group	100 million
Morgan Stanley	70 million
GE Commercial Finance Real Estate	63 million

The aforesaid tabulated companies as per findings of ASSOCHAM have plans to invest respectively US$ 2.9 billion, US$ 1 billion, US$ 1 billion, US$ 800 million, US$ 150 million, USE 125 million, US$ 115 million, US$ 100 million, US$ 70 million and US$ 63 million in India which amply indicates importance and significance of foreign investment in domestic market to foreign developers.

The Study also indicates that Office property market in India will witness a further boom. There is great demand for modern office buildings in India. In the last two years, the capital values of the commercial office spaces have increased by 40%.

The requirement for office spaces alone will grow to over 19 million sq.ft in 2006-07 from 4 million sq.ft in 1999-2000. Approx 75% of the demand will alone  be needed by IT & BPO sectors and by 2010, the sector alone required 200 million sq.ft. of space in major metros.

India will have a demand-supply gap of 17.9 million housing units by 2010. Capital values in residential sector have risen by about 25-40% p.a in the last 2-3 years. According to 10th Five Year Plan, there is a shortage of 22.4 million dwelling units out of which more than 70% dwelling units are for middle and low income brackets. Additional requirement of housing per year during the plan period 2002-2007 has been estimated at 4.5 million units per year.

The Chamber also holds  that the number of malls in Kolkata, Mumbai, Bangalore, New Delhi, Hyderabad and Pune will grow to 300 in numbers by 2010 as against their present strength of 50. In terms of total area, there was 12.40 million square feet (mnsqft) of mall space available in these cities.

The retail market in India has been growing due to increasing demand from retailers, higher disposable incomes and shortage of quality space as on date. The capital appreciation in this sector is close to 20-35% p.a.  The organised retail segment is expected to grow from a mere 2 per cent to 20 per cent by the end of the decade.

The SEZs is the new destination for real estate investors.  Of the around 150 approved SEZs, 85 are in the IT/ITEs area and 10-15 in the electronics area.  The real estate developers are developing nearly 130 SEZs, constituting 50% of the total SEZ area.  However, the manufacturing and engineering sector has a mere 17 SEZs in the approved category based in Haryana, Karnataka, Punjab, Maharasthra, Andhra and Gujarat.

According to ASSOCHAM, IT SEZ could be developed and made operational within a period of six months from the date of notification. Thus over 130 approved IT sector SEZs would immediately result into an investment of $9 bn to $12 bn resulting into massive employment generation. IT companies are using SEZ units for EPOs (Engineering Process Outsourcing). The world class technical training that these IT companies will be required impart to its employees would ignite knowledge revolution resulting into exponential progression of our economy”.

The Study also says that the massive flow of FDIs in Indian real estate sector has started growing as China’s real estate market is reaching its saturation and foreign investors prefer  to invest on freehold land, which is available more freely in India.

The Study has however, pointed out that stringent clauses are still restricting free flow of FDI in Indian real estate markets. Given the internal rate of return on capital investments in India, the country should have attracted far more FDI than what it has until now. But lack of flexibility in policy is a constraining factor.

The Study concludes that with the introduction of REITs would provide a further boost to the real estate industry. This would result in increased rental housing generation and also raise cheaper funds for this sector.  REITs would also provide an opportunity for small investors to access commercial property returns (at present 9 percent to 10 percent per year) that are now unavailable without significant capital outlays. REITs could also foster improvement in investors' portfolios by diversifying the investment base and increasing the stability of income sources. Instruments like equity, mortgage and hybrid REITs can offer investors high yields as well as liquid methods of investing in real estate.

The establishment of a REIT industry would provide a much-needed capital infusion to India's underdeveloped real estate market. There are numerous sources of capital that would welcome a REIT investment option. India's GDP is currently around $ 850 billion and is growing at an average rate of 8 percent. Additionally, household savings are growing at an estimated 15 percent, and this source of investable capital should reach $392 billion by 2010.