2006 was good, 2007 to be better

Real estate sector will continue to be one of the fastest growing sectors.The year 2006 was one of the very good years for the real estate sector, if not the best, in the country. What’s more, experts say 2007 will be better.

With almost all major real estate india companies outperforming the 50 stock benchmark Sensex by hefty margins, the scene in the real estate segment can only get better from here on.

Construction activity across the country is on an upswing, with the state governments offering incentives to real estate companies in a bid to check the spiralling demand for houses and commercial space.

Various studies have said that there would be about five times increase in office space in the next five years, 200-million sq ft for organised retail by 2010 and over 50,000 new hotel rooms will be added during the same period. India will have a demand-supply gap of 17.9 million housing units by 2010, says a study.

The 10th Five Year Plan say that out of the total shortage of 22.4 million dwelling units, over 70 per cent is for the middle and low income brackets. The additional requirement of housing per year during the plan period of 2002-2007 has been put at 4.5 million units per year.

Experts say the real estate sector would continue to be one of the fastest growing service sectors of the Indian economy. A recent study by leading business chamber Associated Chambers of Commerce and Industry of India (Assocham) pegs the total share of FDI in the domestic real estate market at 26 per cent out of the total FDI expected by 2010.

The same study also says that the real estate market is currently growing at 30 per cent per annum and offering maximum returns to investors. “The domestic real estate market, which is presently estimated at $16 billion (Rs 72, 496 billion), will increase by over three and a half times and touch $60 billion (Rs 2,71,860 crore) by 2010,” the report of the Study on Future of Real Estate Investment in India says.

Incidentally, only last year, the government had allowed 100 per cent FDI in the property and construction sector.

This is not the only good news. All major mutual funds and banks have earmarked major sums running into Rs 3,500 crore for this fast-growing segment.

The year 2006 also saw many real estate biggies trying their luck at the stock market, and making handsome gains.

If the maiden IPO of Parsavnath Developers, aimed at raising Rs 1,000 crore, received spectacular responses with 62 times over subscription, the IPO of Sobha Developers also got good response. In the pipeline are mega IPOs of DLF and Orbit.

Such was the buoyancy associated with the sector that Ishaan Real Estate of the Raheja Group successfully raised £180 million on the London Stock Exchange (LSE) while another company, Hiranandani Constructions, is planning to raise $500-750 million on the LSE.

According to reports, the market size, which is now estimated to be $12 billion, is expected to grow at 33 per cent to $50 billion by 2010.

In what can be another indicator of the dream run of this sector, the market value of Unitech shares has gone up by a whopping 75,000 per cent. While the market cap of the company was Rs 55 crore in November 2002, it now pegged at over Rs 41,000 crore.

Similarly, the price of Arrow Webtex scrip zoomed by over 44,000 per cent from Rs 1.35 to Rs 600, while Ansal Properties rose by 29,500 per cent from Rs 3.33 to Rs 985.70.

Such is the global interest in the real estate success story of India that the International Herald Tribune has predicted that the real estate india market will grow at a more hectic pace the next year.

Says a senior officer of India’s biggest public sector bank State Bank of India: “The real estate sector has only just started growing. Name one single major company that is not venturing into this sector. A booming population will ensure that housing will always remain a problem area. It is a good investment opportunity.”

In the region, Punjab has taken a major lead when it comes to real estate projects, with almost over 75 mega housing and infrastructure projects having been cleared as development of townships, housing & urban infrastructure under the Industrial Policy, 2003 by the state government.

While Chandigarh continues to hold on to its pre-eminent position as far as property rates are concerned, Tier II cities like Mohali, Panchkula, and districts such as Amritsar, Jalandhar, Ludhiana, etc, are seeing feverish construction activity.

DLF has been permitted to construct three mega projects, while Emaar MGF Land has received a go-ahead to develop over 2000 acres.

The region is also witnessing a spurt in the number of malls and multiplexes, with many major companies entering the scene. The Assocham has said that the number of malls in Kolkata, Mumbai, Bangalore, New Delhi, Hyderabad and Pune will grow to 300 by 2010 as against their present strength of 50.