Why India? – and Why Now?

Commercial real estate in India has yielded impressive gains for the past two years, reflecting skyrocketing demand and constrained supply. Available, structurally sound, adequately equipped and attractive housing or business property is limited in both major cities and emerging business locales. Annual return rates now exceed 20% for office, 25% for retail and 75% for existing and newly developed residential property5. Annual market value appreciation for Indian real estate is now 30%, annual commercial property returns in Bangalore and Hyderabad are running about 12%6, among the highest in the world.

Consider office space. Driven by the IT industry’s 50% average annual growth7 rate since 1993, office buildings frequently are fully occupied at completion, and demand is projected to triple nationwide -- to at least 60-80 million square feet -- in the next three years8. Office and manufacturing demand are escalating in cities such as Pune, Hyderabad and Chennai, which may offer better infrastructure, lower costs and more available land than the traditional destinations of Mumbai, Delhi and Bangalore. In retail, large-scale malls and multiplexes are springing up nationwide. Yet, only 2% of retail sales come from modern retail9, suggesting major opportunity for organized retail. Hospitality is following suit as Indian and foreign-based travelers, both business and leisure, multiply.

In residential real estate, which constitutes 75% of India’s real estate market10, demand is being intensified by urbanization and easier credit access. Statistics are complicated by India’s large homeless population, but estimates of the current housing shortage run as high as 20 million homes annually, half in urban areas. Despite the construction of about 4.5 million new homes annually, demand11 estimates spiral further upward in coming years.12 A partial solution -- and an intriguing investment opportunity -- may lie in new, mixed-use "townships" that combine residential, office and retail facilities. Indian developers are embracing the concept of these self-contained communities, particularly in the vicinity of smaller and mid-size cities, that may each house thousands of residents.

Other notable prospects: bridges, ports and other infrastructure that can facilitate the nation’s growth. Large, undeveloped tracts held privately or by government entities, such as Indian Railways and state governments, also may be available for development.

Courtesy: Deloitte article on India Real Estate

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