Experts believe that the real estate and infrastructure sectors will benefit from higher economic growth in the country. But there is a case for caution in the short-term
Two little-talked about sectors, education and healthcare, will significantly boost the growth of real estate in India in the current decade, according to Jones Lang LaSalle, the global real estate consultancy. Anuj Puri, chairman and country head, Jones Lang LaSalle India, says these generally "invisible sectors" will contribute largely to the growth of the real estate business.
The real estate business is passing through a particularly difficult phase, hemmed in by increasing costs and sharply rising housing loan rates that has resulted in considerably slower sales.
Mr Puri points out that the education industry, which is likely to cross $70 billion by 2015, will require an additional 16 million square feet in the next four years. Similarly, the healthcare sector is expected to nearly double in value from the current $144 billion to $280 billion by 2020.
"Over 150 hospitals are scheduled to open their doors over the next four years alone, and this will by itself account for approximately 22.5 million square feet of healthcare-related real estate," Mr Puri says.
This optimistic view is in line with the global observation by the real estate consultancy of a strong rise of the BRICS group of emerging markets. It says, these countries accounted for 13% of global investment volumes in the first quarter of 2011, compared to just 2% in 2007.
In the case of India, this is backed by a positive economic outlook. "Despite the continuing turbulence and uncertainty in other parts of the globe, two economies-India and China-will continue to grow at an annual rate of 8%-10%. In fact, by 2020 India will become the 3rd largest economy after China and the US," Mr Puri says. Realty and infrastructure sectors should leverage on this growth, attracting significant investments.
However, there are others who are cautious. "The talk about India being a superpower next to the US or China has been around for quite long," said an analyst. "Nothing of that has happened yet. And real estate being an extremely volatile market, it is difficult to predict how it will behave in the next ten years. The world over, there are people who feel that a realty crisis is deepening. We must be prepared for anything."
In April, the Asian Development Bank said that the realty sector in India would see a U-shaped trajectory, with a lull in 2011, followed by a surge soon after. India's investment-grade real estate was valued at more than $100 billion at the end of 2010-a level that has been achieved only by China.
According to Jones Lang LaSalle, information technology, which has been one of the faster growing sectors, is also expected to continue to generate demand for office space.
"By 2020, the current size of the IT/ITeS market in India will have grown from the current $67 billion to $225 billion. Simultaneously, the markets for hardware and electronics will increase from the existing $45 billion to $400 billion," Mr Puri says. It is estimated that the demand for commercial properties in the country has already doubled from a low of 20 million square feet to 40 million in 2011, and this is likely to go up to 45 million square feet by 2012.
The other big demand generator would be the retail sector, which is brimming with hope after the government started to allow more FDI in major cities. The retail sector, worth $500 billion today, is forecast to grow to $900 billion by 2020. Organised retail, which constitutes a measly 5% of this pie, is also showing healthy growth.
"Demand for retail real estate rose from 4 million square feet in 2010 to 11 million square feet in 2011. If we factor in the spiralling aspirations of Indian shoppers, the constant development of new residential catchments, townships and satellite cities, the real estate demand from Indian retail by 2020 can well be imagined," Mr Puri says.
He is also optimistic about residential space and hospitality industry, which always feature in the radar of realty sector analysts in a big way. The ministry of housing has estimated a shortfall of 26 million residential units by 2012. The travel and tourism market in India is expected to grow from the $144 billion in 2010 to $431 billion by 2020. In the next four years alone, the branded hotel industry will likely see an addition of 60,426 rooms.
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