Globally, economies have been struggling to maintain their growth rates. The Indian economy however has been resurgent. The recent years have been witness to increasing income levels and accompanying aspiration levels as well. Not only has there been a drop in the average age of tax contributors, there has also been a marked decline in the average age of serious property owners.
Real estate, in the form of land or actual tangible structures has always been considered to be an important goal of an income earner. The concept, though ages old, still holds true, with only some minor changes.
Acquisition of property is given a great amount of weightage for two main reasons: it is a stable investment avenue and has the potential for steady value appreciation (of course dependent on locational factors).
These factors accompanied by centrally sponsored tax incentives for investments in housing property have helped establish a marked swing in the demand for real estate in each of the metros in India as well as most of their satellite townships.
The real estate segment of the Indian economy has undisputedly been in the throes of a boom. This can be attributed to several contributing factors.
The growth potential of the real estate sector has always been high given that the demand for land is always there and growing, while the supply is limited. However, this has also been enhanced by several other factors like :
The rapid growth in the middle class population
rising job opportunities in the metros
the emergence of a vast number of second tier cities as favoured business centers by IT and ITES sectors
Sharp rise in disposable incomes
Easy availability of loans at affordable interest rates and easy terms or repayment. This makes it a promising investment option for salary income earners.
Attractive tax advantages for housing loans
Investment in Real estate is usually devoid of the risk of depreciation in value and most cities of India have recorded an annual price appreciation of 10 per cent.
Cement and other building materials have recorded better prices, which has given a further impetus to construction industry.
A further fillip was provided to this sector by the proposal to allow 100 per cent Foreign Direct Investment (FDI) in the Real Estate sector. It is now estimated that a minimum foreign investment to the tune of Rs 4500 crore will flow into the Indian construction industry annually.
Significantly, the RBI raised the risk weight on real estate exposure and even this has given way to a rise in property prices in the medium term. This is inspite of banks charging higher rates of interest and also offering loans only to credit grade projects.
Thus, it is clear that the real estate boom, at this point in time, appears to be on a relatively strong wicket. In the week ahead, we will commence a journey across the key metros to review the real estate situation therein.
( Ashok Kumar heads Lotus Knowlwealth)