Thursday 28 March 2013

Growth of Indian Real Estate Sector

The real estate sector is a critical sector of our economy and it also has a huge multiplier effect on the economy. This sector has a major role in the economic growth of the country. After agriculture, it is the second largest employment generating sector and it is growing at the rate of about 20% per annum. It contributes to about 5-6 % of India’s GDP. Generating a high level of direct employment, real estate also generates a demand in over 250 ancillary industries such as building materials, paint, steel, cement, consumer durables etc. Since 2005, the Indian real estate industry has been growing at a high rate. There was a boon in the investment and developmental activities after the government’s policy to allow Foreign Direct Investment (FDI) in this sector. Many new domestic realty players and also many foreign real estate investment companies entered into this sector due to the high returns on investments. After that the real estate sector has been through many highs and lows.

Due to a growth in demand, substantial development and increased foreign investments, the industry grew during 2007 and early 2008. There was a fall in the industry in mid 2008 due to the global economic slowdown. This downturn was also due to the significant drop in the FDI inflow into real estate. The housing and real estate sector attracted FDIs’ of 8.9%, 10.3% and 11% out of the total FDI in India, in the years 2007-08, 2008-09 and 2009-10 respectively. There was however a low 6% FDI in this sector in the year 2010-11. In the year 2010, this sector sprang back after the down period and the global downturn’s recessionary pressures.

By the focus on ‘affordable housing’, the sector came back from the financial crunch it was in. It is of little doubt that the sector will attract FDI in its various segments. But it can progress only by the joint efforts of the industry and the government. Increased transparency, clear land titles, improved delivery and project execution should be looked into by the industry and the government should provide fiscal incentives to developers to build low cost and affordable housing for the people. In order to increase the flow of foreign capital into the sector, the government should also review the existing FDI guidelines for investment and development in the sector. For the industry to deliver low cost, affordable, and sustainable and environment friendly housing and building structures, the government should provide incentives to the public and private sectors. By these incentives, these sectors can take up R & D activities for new building materials and technologies.

In townships, housing, built-up infrastructure and construction development projects, the Government of India vide Press Note No. 2 of 2005, permitted FDI up to 100%. This was done to bring in new technologies in the housing sector and to remove the huge shortage of housing in the country. Tough large amounts of foreign funds was attracted by the original guidelines vide this press note, the FDI inflow was affected adversely by the subsequent amendments to the FDI policy relating to real estate. This was due to the apprehensions and confusion in the minds of the global investors that resulted out of these amendments. Increase of key rates by the RBI many times during the last one year, increased monitoring of the sector by regulatory agencies, tightening of rules for lending to the real estate sector and lack of consistency in rules relating to development of SEZs have hindered the growth of this sector. Introduction of reforms and streamlining of government policies are required for its growth.
 
Piyush Group is one of the leading real estate company in india. Piyush Group is involved in development of Integrated Township, Group Housing Projects, Commercial Mall

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