Thanks to the booming Indian real estate sector, owning a house is no longer a life-long dream to be realized at the fag end of one's career. Even for youngsters, who've just started earning their bread and don't have a penny in the bank, buying a dwelling is literally a phone call away. One can find everything - from home consultancy to finance - under one roof.

The interest rates on home loans have fallen from 18% mid '90s to the current 8.5%. In 1995, the cost of a 22 times the annual salary of a home-buyer. It has now come down to 4.6 times. Beside a wide array of soft loan options coupled with tax benefits have made even youngsters dream of building a house of their own Earlier, taking home loans was a cumbersome exercise, but now youngsters are borrowing even from their future earnings. There is some concern about the possible adverse effect of the recent hike in home loan interest rates. Mr G.P. Savlani, resident director, Confederation of Real Estate Developers Association, is also worried about its burden on the middle class. However, Mr Savalni hopes that this effect would be nullified by rising incomes. Praveen Bhatia, Director, Jaipuria Infrastructure Developers Pvt. Ltd., feels, "increase in interest rates is being reciprocated by the increase in disposable income... People can afford, that's why they demand costly houses. Also, their line of thinking has changed; what we used to call luxuries are now the necessities for life." However, Bhatia says the home loans provide the base fund for the house; if the home loan policies become more flexible then it will facilitate the boom. Industry watchers demand opening up more avenues to facilitate long-term finance for the housing sector. They feel permitting real estate mutual funds/investment trusts would allow individuals with small amounts of cash to take advantage of the returns available from the real estate market. It would serve as an efficient mode for providing equity financing as against debt, which is currently the norm for financing real estate projects in the country. This mode is used in real estate markets in developed countries such as USA, Singapore, Hong Kong, etc. Good news is the Securities and Exchange Board of India (SEBI) has given the go-ahead to asset management companies to roll .out real estate mutual funds (REMY). These funds will be close-ended, that is redeemable after the lapse of a certain period of time. They will also be functionally different from typical equity funds, with a low correlation to the stock markets. The biggest challenge before the real estate mutual fund managers would be the valuation of property as prices fluctuate regularly. Regarding government support to the real estate industry, Mr Savalani feels it is not there as per their expectations in the taxation and regulatory fields. He says the real estate industry would prove a useful partner to the government in infrastructure development provided it is given appropriate incentives.


Rising interest rates and RBI's consistent squeezing of funds to the real estate sector have once again fuelled fears of a bubble. But in a recent interview KV Kamath, CEO and MD of ICICI Bank, has allayed these fears. Kamath stresses that 95% of home loans are for personal occupancy, not for investment in real estate. It proves that the demand for real estate is real, not inflated. Kamath also pointed out that since India is on a growth cycle, many repercussions would be taken in stride by the economy. Bhatia also feels the current real estate boom is not a bubble. "The boom will continue for another 10-15 years if the support of the government and development of infrastructure goes hand in hand," adds Bhatia. Savalani, echoing Bhatia's views, says, "Demand is much higher than the supply. The population of the country is elevating faster than ever, and also the migration rate is increasing, so there will be high demand for both commercial and residential complexes." However, Vikas Singh, Director Lakshmi Vatika Limited (LVL), feels the boom is due to investors and not in the hands of end-users. "But it is not a short-lived phenomenon, it will sustain for at least four years depending upon the development of infrastructure," hopes Singh..


With rising consumer expectations, the real estate industry entering the phase of tough competition. However, Rajshrec's Sharma is not deterred by competition. He says, "The field is wide open and the demand is very high. So, if we can prove ourselves then there is no competition." Jaipuria's Pravin Bhatia says, "High competition in the industry encourages us to continuously work for achieving higher levels of growth and customer satisfaction. One can sustain in the market only with a good marketing strategy and foresight, visualizing the upcoming trends." Lakshmi Vatika's Vikas Singh also stresses the importance of marketing strategy and foresight to survive in the highly competitive industry.


Industry watchers feel an urgent need to enact new laws to replace various Union and State laws governing different aspects of real estate. Many of these laws date back to the 19th century. In this direction, many initiatives like repeal of Urban Land Ceiling & Regulation Act, 1976, formulating Model Rent Control Legislation, Model Apartment Ownership Legislation and the Model Property Regulation Bill for States have been taken. Several States have also adopted these measures. There is also an urgent need to reduce stamp duty, which in some states is as high as 10-13 per cent. This results in a massive understatement of the proceeds of a property sale. "Reduction and rationalization of stamp duties will facilitate recurrent buying and selling. And, it will not cause revenue loss to the government as it will discourage under-invoicing," feels Mr Savalani.


Here are some facts that paint a rosy picture of the real estate sector. Almost 80%of the real estate developed in the country is residential. The current housing shortage in the country has been estimated at 23 million units including rural and urban areas. The country needs to plan for an increase in urban population from the current 300 million to a projected 550 million by 2030. Besides, the commercial sector alone requires 66 million sq ft in the next 3 years. In the residential segment, urban housing is short of around nine million units. According to ADB estimates, this deficit will escalate to around 22 million units by 2007-08 India will need up to 10 million new housing units per year by 2030. "It is this deficit that will keep driving the real estate industry for next to years," feels Mr G.P. Savlani.

A new phenomenon that augurs well for the housing market growth the trend of sub-urbanization. prime factor making people seareh houses in sub-urban areas is the prospect of improved transport facility in the form of Metro and avail ability of better infrastructure. The development of Metro in most big cities is either underway or being planned. People are also increasingly relocating to sub-urban areas due to affordable capital and rental costs.

Another catalyst of growth for the Indian realty sector could be the Urban Development initiatives of the Central Government such as Jawahalal Nehru National Urban Renewal Mission and the Mega Cities Fund scheme. These schemes aim to enhance the infrastructure provision and the quality of living in the large urban centers.

Another area driving the real estate sector is hotels. Increased business travel (due to the economic boom), higher international and domestic tourism and the emergence of low cost airlines have fuelled strong demand for hotel accommodation. The country has an acute shortage of hotel rooms. With an estimated 26,000 rooms in the branded sector, the WTTC has forecast a requirement for an additional 100-125,000 rooms over the next decade.

Several upcoming and proposed Special Economic Zones (SEZs) are expected to provide the next generation impetus to the commercial space development. Through fiscal benefits, SEZs are bound to attract the IT/ITES and other global service sector players to the country, which would boost the demand for grade A office space.

Using the words of Rajshree's Sharma, the real estate future is bright as the infrastructure is developing. However, he cautions, "Our infrastructure is in the preliminary stage and locked up, which means the pace of development is slow. Where there is sound infrastructure, the real estate boom will sustain for a long time." So, if the real estate industry and the government supplement each other's goals, the Indians will soon be enjoying the fruits of real development while living in cosy homes.


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