The Indian real estate industry is emerging as one of the most preferred investment destinations for global realty and investment firms, says a study conducted jointly by the Federation of Indian Chamber of Commerce and Industries (FICCI), the premier industry body of India having a membership of more than 1500 companies and more than 500 chambers of commerce and business associations, and U.K.-headquartered professional services firm Ernst & Young (E&Y), which is one of the world’s Big Four accounting firms.

The current size of the Indian real estate industry is estimated at about $14 billion - $15 billion. The Indian real estate market will grow to $50 billion in 2010 from $12 billion in 2005, forecasts a Merrill Lynch report in May 2005. Merrill Lynch & Co., Inc., financial management and advisory firm expects the industry size to reach at $90 billion by 2015.

The FICCI-Ernst & Young (E&Y) study says that in the commercial office segment, the demand for office space is set to increase significantly in the next few years, primarily driven by the IT and IT-enabled Services (ITeS) industry. As far as the residential segment is concerned, rising disposable incomes, financing terms and rising population will continue to be the driving force of housing demand in India.

The boom in the economy across industries, increased business travel, new opportunities such as medical tourism and the entry of low-cost airlines are expected to result in the sustained growth of the hospitality linked real estate in the country. The rise of organised retail segment is another growth driver for the realty sector.

IT and ITeS industry key driver for demand in commercial office segment

In the commercial office segment, the demand for office space will primarily be driven by the IT and ITeS industry, says the FICCI-Ernst & Young (E&Y) study. The commercial office segment would require an additional office space of more than 367 million sq. ft. up to the year 2012-13, out of which approximately 256 million sq. ft. would be required by the Indian IT & ITeS sector only. On the supply side, the unlocking of prime land by Public Sector Undertakings (PSUs) in next 2-3 years will be another key driver, says the study. With rising realty prices, a large number of PSUs that own prime real estate in metropolitan and other major cities are now looking to commercially utilising such land. This new trend will provide for a significant amount of land supply for commercial development at prime locations, predicts the FICCI-E&Y study.

Rising incomes along with growing population propel housing demand

In the residential segment, India is short of approximately 9 million urban housing units. This deficit will escalate to around 22 million units by 2007-08 and by 2030 India will need up to 10 million new housing units per year, according to the Asian Development Bank (ADB) estimates. Rising disposable incomes, financing terms and growing population will continue to be the driving force of housing demand in India, suggests the FICCI-E&Y study.

Growing economy becomes the key driver for hospitality segment

In the hospitality segment, the demand for hotel rooms is increasing as the economy is growing across industries. Low-cost airlines have also given the much needed boost to business as well as leisure travel. The FICCI-E&Y study expects the demand for hotel rooms to continue increasing, as the inbound foreign and domestic tourism in the country will become more economic. There are an estimated 1.2 million hotel rooms in the country, of which star hotels account for a mere 7% (approximately 80,000 rooms). There will be a total of 2.9 million and 6.6 million hotel rooms in India in 2010 and 2020, suggest the government estimates. The demand for hotel rooms in the country will continue to grow at a compound annual growth rate (CAGR) of 10% over the next 5 years, as per a report by CRIS-Infac, the industry information service of CRISIL, India’s leading ratings, financial news, risk and policy advisory company.

Relaxation in FDI guidelines likely to metamorphose the retail space

While the growing middle class and consumerism is slated to support the retail industry, the further relaxation in FDI guidelines is likely to metamorphose the $250 billion Indian retail market, says the FICCI-E&Y study. By the end of 2008, the eight key metropolitan Indian cities will experience a supply of around 66 million sq. ft. of new retail space through more than 200 proposed retail centers, forecasts the study quoting the industry estimates. The next seven sub-metro cities will have around 38 centers with an estimated 13 million sq. ft. of retail space by the end of 2008.

The landscape of the Indian real estate market is changing fast, as it is poised to emerge as one of the most preferred investment destinations for global realty and investment firms. See where the contours are expected to change in the next 3-5 years:

• Developers till now concentrated on metros moving toward smaller cities also
• Shift from the dominance of regional players to national players
• Large Indian groups consolidating their business to emerge as market leaders
• Project size enlargement with a focus on product differentiation & quality
• Shift from land transaction to development transaction
• Change in ownership to leasing
• Correction in supply format from investor to consumer driven
• Big construction companies moving up in the value chain