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Real estate to push growth trajectory: report

The Indian real estate sector is set to become one of the biggest wealth creators in the country, reports Arun Kumar.

india Updated: Dec 20, 2006 00:04 IST
Arun Kumar

The Indian real estate sector is set to become one of the biggest wealth creators in the country. Strong GDP growth, the increasing impact of software and IT enabled services, the growth of organised retail, the continued inflows of foreign direct investment and portfolio investment are all spurring its growth.
 
The market capitalisation of real estate companies in India, currently around $16-18 billion (Rs 72,000 - 81,000 crore), is expected to rise ten-fold in the next ten years, according to Edelweiss Securities, crossing $160 billion. By end 2007 itself, once companies like giant realtors like DLF, Omaxe and others are listed, the market cap may be over $50 billion.

Name          Market cap (Rs in cr)

                     Mar-04     Dec 18, 06
Unitech         324.7      37,784
Anant Raj Ind  40         4,580
Mahindra G   219.2       3,358
Ansal Prop    102.3       5,617
Prajay            19.6       1,509
Peninsula L   365.2       2,827

Edelweiss, in its report, also states that investable real estate in the range of $480 to 600 billion will be created in the next 10 years. Assuming about 40 per cent of this is funded though equities, it will create a market cap of $160 to $220 billion. "Real estate in India is in a breakthrough phase and is poised to be an important part of the country's growth trajectory, leading to significant market creation," says the report. This follows a 50 times increase in the market cap of the listed companies over the last two years, albeit on a low base.

Given the tremendous demand for housing, coupled with an improving regulatory landscape, robust economic growth, modernising urban development methods, the realty sector will become extremely attractive over the next four to five years, says another report prepared by SSKI India.

Residential housing forms an extraordinary 91 per cent of the overall real estate activities in India. "We expect investment in the residential segment to increase at 18 per cent CAGR (compounded annual growth rate) to $107 billion by 2011. Investment grew by 22 per cent in the financial year 2006 to $46.6 billion.

This is likely to translate into annual requirements of 2.6 billion sq ft of space in the urban areas in 2011 as against 1.8 million sq ft in financial year 2006," says the Edelweiss report.

Currently residential stocks in India stand at 36 billion sq ft at an average household size of 1,100 sq ft. Conservative estimates claim residential stock will increase by another 11 billion sq ft in the next five years, an annual growth rate of 2.3 billion sq ft. At an average investment of Rs 1,300 per sq ft, it needs an annual investment of 83.2 billion in the residential housing sector.

Besides the residential three more segments - commercial, retail, and special economic zone (SEZ) - will drive real estate boom, feel analysts. In commercial space, with 80 per cent of the demand coming from the IT/ITES sector, a whopping $7.1 billion investment will be made in 2011 at a CAGR of 28 per cent during the next five years.

As per the conservative estimates 299 million sq ft of office space construction by 2011 as against 135 million sq ft of office space India had in 2006 March.