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Dissolving borders through cross-border integration - EY - India

A new realty : Dissolving borders through cross-border integration

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The Indian real estate sector is under close watch, suggests our latest report.

Globalization impacts real estate

The rising phenomenon of globalization has influenced the cross-border integration of various sectors such as services and manufacturing. This also has indirectly influenced the various domains comprising real estate.

  • The gradual opening up of formerly closed economies in the developing world has provided varied opportunities for international companies with expertise.
  • The liberalization of property ownership regulations and relaxed taxation regimes are making it attractive for foreigners to consider investments across borders.
  • This, along with regulations dealing with modifications in business licensing, have all contributed to dissolving boundaries.

The global trend

Dissolving borders through cross-border integration

The India story

  • FDI in the sector dipping: FDI was reported to be the lowest in the last four years. While FDI in Africa is expected to increase to US$ 150 billion by 2015 from US$843 billion in 2010.
  • Pricing of the housing to go up: The cost of the raw material has increased drastically, putting pressure on the profit margins of developers.
  • Labor shortage exerting pressure on the real estate sector:The industry is grappling with labor shortage. The situation is expected to worsen in next decade when the demand is expected to increase three-fold.
  • Affordable housing revisited: During the period between March 2009 and November 2010, developers sold more than 40 million sq ft. of mid-income residential property in the National Capital Region (NCR) region alone. Beginning in 2011, the focus reverted to luxury housing. The tightening liquidity has once again caused developers to focus on affordable housing
  • Heightened private equity (PE) activity: During the period between January and June 2011, PE investments in real estate reached US$444 million, which is 47% higher than the investments made in 2010 during the same period. Most of the investments are coming from realty-focused funds.
  • Hospitality: driven by the growing economy: The Indian hotel industry is poised to witness healthy growth (expected CAGR of 11.8%) over the next five years (2009-2010 to 2014-2015) and is expected to reach US$5.7 billion in 2014-2015.
  • Oversupply to continue impacting the growth of commercial property -Bengaluru to witness increase in rental due to lowest vacancy rate and oversupply, while Noida may not experience an increase in rentals due to high vacancy rates. Mumbai and Delhi are the undisputed leaders in all forms of real estate, but due to scarcity of land, rising rentals and capital value, developers and industries are targeting Kolkata, Pune and even tier II cities such as Mysore, Chandigarh and Jaipur.
  • Retail: growth prospects amid policy reforms, but the negative impact on the rentals will be witnessed. The Government of India is considering the proposal of 100% FDI in multi-brand retailing, which may be the next boom in retailing.

Download this report for an extensive comparative analysis of the Indian real estate sector with its global counterparts.

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