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A CREDAI-CBRE INITIATIVE
Contents
Executive Summary 1
01
INTRODUCTION
1.1
1.2
1.3
1.4
1.5
02
Key Findings
2.2
Overall Economic Impact of the Real Estate Sector in the year 2013
10
2.3
11
2.4
12
03
CONCLUSION 14
About CREDAI 15
About CBRE 16
Executive Summary
A decade of economic renaissance
India has witnessed strong economic growth in the last decade primarily on account of economic reforms
that ushered in an era of liberalisation and provided for increased participation from the private sector.
Opening up of the economy for investment was instrumental in spurring broad-based fundamental
growth across various sectors, thereby leading to accelerated consumption and heightened investment
activity in the economy. This growth has percolated to the construction and real estate industry as well,
which is a conduit for growth in a large number of ancillary industries in the country.
01
INTRODUCTION
1.1 Growth Machine: Indias Economy
India introduced large scale economic reforms in the year 1991 and implemented structural changes
across sectors such as services, financial and industrial. Led by liberalization of the economic processes
along with broad-based fundamental growth across various sectors, Indias economy has exhibited
healthy growth rates in the last decade. The average growth rate registered over the period 2000 2012 was about 7.2%1. This growth has been on the back of increased consumption, higher investment
activity as well as productivity gains. Surviving on domestic demand and enhancing consumption levels,
the manufacturing and services industries have also posted healthy growth levels in the past few years.
Sustained economic growth in the last decade has not only propelled India into the league of leading
emerging economies alongside China, Brazil and Russia, but also implied that the country is making
an important contribution to the overall increase in the global economic output.
Indias Economic Growth over the years
20
15
9.5
8.5
10
6.5
Growth Rate (%)
6.1
4.8
9.6
9.3
6.9
5.8
4.4
6.8
8.0
8.5
6.5
5.0
4.0
5.7
-10
India
Brazil
China
Japan
2013 - 2014*
2012 - 2013*
2011 - 2012
2010 - 2011
2009 - 2010
2008 - 2009
2007 - 2008
2006 - 2007
2005 - 2006
2004 - 2005
2003 - 2004
2002 - 2003
2001 - 2002
2000 - 2001
1999 - 2000
-5
1998 - 1999
0
1997 - 1998
European Union
However, over the past two years stagnating global economic conditions have led to a slowdown in the
countrys growth. GDP growth continued to inch downwards in 2012-13, declining to 5% during the
finacial year, compared to 6.5% during the previous year2. This was accompanied by persistently high
inflation and declining industrial growth. However, as a positive step towards dispelling the general
feeling of gloom, the government has continued to maintain its momentum of introducing structural
reforms in the economy. Foreign direct investment in sectors such as multi brand retail, single brand
retail, banking, pension and broadcasting was approved by the union cabinet, while a new Companys
Bill was recently approved by the lower house of the parliament; the government is also working on
deregulating fuel prices and reducing the subsidy burden on the economy, thereby focussing upon fiscal
prudence, controlling inflation and propelling India back into the high growth trajectory.
Foreign Investment Inflows in India
50
46.84
41.87
40
37.74
34.83
33.91
32.9
30
USD Billion
22.82
20
10
8.96
0
2005 -06
2006 -07
2007 -08
2008 -09
2009 -10
2010 -11
2011 -12
2012-13*
-10
-20
FDI inflows
FII inflows
The industry has reacted positively to this wave of economic reforms, supporting the government in
its drive towards reinstating economic growth. The real estate and construction industry has been
particularly enthusiastic about relaxed guidelines on foreign investment in sectors such as retail and
low cost housing. While these reforms might have a moderate impact on the countrys immediate
growth prospects, the industry expects that in the long run, these steps will support in creating a positive
sentiment amongst global investors for positioning India as a key investment destination.
9%
46.84
45
8%
41.87
40
37.74
34.83
35
7%
32.90
6%
30
24.65
22.82
25
4%
20
3%
15
10
2%
8.96
1%
5
0
5%
Share (%)
The Indian real estate sector, with backward and forward linkages to approximately 250 ancillary
industries, has been making rapid strides in recent times and has emerged as one of the most important
contributors to the Indian economy. The sector continues its metamorphosis from being largely fragmented
and unorganized to become as structured and organized as its peers in developed economies across
the globe. The growing prominence of India in the global scenario has had a positive impact leading
to increased expectations and responsibilities on this sector.
USD Billion
2005 - 06
2006 - 07
2007 - 08
2008 - 09
2009 - 10
2010 - 11
2011 - 12
2012 - 13*
0%
The real estate sector has partially risen from the liquidity crisis it was entrenched in 2009, when bad
debts and declining demand led to a dip in the market. However, post 2009 the sector witnessed
recovery in investment and construction activity. An indicator of this recovery is the level of construction
activity witnessed in the real estate space in the country from 2010 to 2012; a total of 200 million sq ft
of investment grade commercial office, retail and residential real estate space is lined up for completion
across the seven cities of National Capital Region (NCR), Mumbai, Bangalore, Chennai, Hyderabad,
Pune and Kolkata in 20133. The sector has also emerged as the most prominent investment option for
the countrys urban households, taking priority over gold, fixed deposits and stock exchange trading.
The following graph highlights the prominence of real estate as an investment asset for an average
urban household in India4.
Segmentation of Investment by Urban Households in India
2% 2%
3%
4%
Real Estate
3%
30%
Bank deposit
Insurance and Pension
10%
Post Office
Mutual Funds
Consumption
Equities
19%
27%
Others
Source: Reserve Bank of India, National Council for Applied Economic Research
3. CBRE Research
4. RBI/NCAER Household Survey
The synergies between the construction and the real estate sector cannot be ignored as real estate
accounts for a significant portion of the construction segment. India is expected to become the third
largest construction market in the world by 2020, with the real estate sector expected to reach a size
of USD 180 billion5. Increased activity across various industry verticals combined with rising domestic
consumption of goods/services have contributed towards increased demand levels for real estate across
segments. In addition, an untapped housing demand (estimated housing shortage of 18.4 million
units by 2012)6, has also provided developers with an opportunity of catering to buyers across the
affordability spectrum in multiple cities and towns.
400
350
Million sft
300
250
200
150
100
50
0
Source: CBRE Research
NCR
Mumbai
Bangalore
Residential
Chennai
Retail
Hyderabad
Pune
Kolkata
Office
The investment grade commercial office real estate in the country has grown tenfold from about 37
million sq ft in 2003 to about 370 million sq ft in 2012, with another 100 million sq ft lined up to be
completed till 2015. This growth was spread across leading cities such as Delhi, Mumbai, Bangalore,
Chennai, Kolkata, Pune and Hyderabad. However, substantial opportunity lies for further growth
as the commercial office real estate space in major commercial hubs in India is still lesser when
compared to other developed cities in the world
The total size of organised retail real estate in the country has also increased tenfold from about 5
million sq ft in 2003 to about 52 million sq ft in 2012, with another 15-20 million sq ft lined up to
be completed till 2015. This growth has largely been concentrated in prominent retail hubs such
as Delhi, Mumbai, Bangalore, Chennai, Kolkata, Pune and Hyderabad; more than 200 shopping
malls have mushroomed in these leading cities, gradually pushing the share of organised retail in
the country upwards
More than 150 million sq ft of investment grade residential real estate space was launched by private
developers in the country in 2012. This was instrumental in driving construction activity across cities
such as Delhi, Gurgaon, Mumbai and Bangalore
The sector attracted foreign direct investment worth USD 11.5 bn (INR 62,000 crores) from April
2005 February 2013; this was about 4% of the overall FDI across all sectors during the same
period8. The sector received total private equity inflows of about USD 15.7 bn (INR 80,000 cr) from
2005 2012. This was about 24% of the entire private equity investments across all sectors of the
economy9
Growing Urbanization
Urbanisation in India has been increasing at an unprecedented rate, with almost 71 million people
added to the urban population from 2001 to 2011. At this rate, close to 534 million people (greater
than the combined population of the United States, Russia and France) will live in Indian cities by 2026.
This offers tremendous opportunities for real estate development, particularly for housing.
Urbanization to Fuel Housing Demand in Leading Cities
38.2
600
500
Population in Millions
Indias real estate sector has a strong growth potential in the coming decade, as it thrives upon
tremendous growth opportunities linked with the countrys development cycle and socio-economic
transformation. Few of these opportunities have been discussed below.
45%
40%
32.2
30.0
27.8
35%
30%
400
25%
300
200
20%
534
432
357
286
100
15%
10%
5%
2001
2011
2021
Urban population
0%
2026
350,000
350,000
290,000
300,000
250,000
250,000
200,000
150,000
123,000
160,000
156,000
100,000
50,000
0
2009
Rural
2015
2009
Urban
2015
2009
2015
All
India
Urban
6.7
7.1
6.5
7.5
8
8%
7%
100
6%
USD Billion
80
5%
60
40
63
69
88
74
101
3%
2%
20
0
4%
1%
2008
2009
IT BPO Revenues
2010
2011
2012
0%
Contribution to GDP(%)
Source: NASSCOM
02
ASSESSING THE
ECONOMIC FOOT PRINT
OF THE SECTOR
In order to assess the economic opportunities generated by every square feet of estimated real estate
space constructed in the country, CBRE conducted a broad study of leading construction component
sectors contributing to the growth in real estate space. The economic footprint of the sector has been
discussed in the key findings of the study mentioned below.
3.6 billion sq ft
22 million Tonnes
1 million Tonnes
10. The real estate sector considered for this analysis does not include sub sectors such as infrastructure projects organized industrial,
hospitality, semi-investment grade retail and office space, residential in rural areas, etc.
11. Calculated basis statistics from the Census of India 2011
10
Iron &
Steel
Cement
Bricks
Glass
Sand
Wood
Others
Potential Revenues
(INR Crores)
103,000
78,000
47,000
34,000
15,000
45,000
48,000
Investment Generated
(INR Crores)
87,000
70,000
18,000
4,000
7,000
35,000
33,000
Direct Employment
Generated
157,000
100,000
1,600,000
2,000
105,000
129,000
350,000
Potential employment generated on the building site during the construction of 3.6 billion sft
in 2013
5,100,000
2.2 Overall Economic Impact of the Real Estate Sector in the year 2013
Assuming industry standards for costs of construction for commercial office, retail and residential assets,
following is a broad estimate of the economic footprint of the real estate construction sector in the year
2013.
Total Estimated Real Estate Supply (2013)
3.6 billion sq ft
INR 370,000 cr
12
INR 5,833,685 cr
6.3%
INR 254,000 cr
As highlighted above, the real estate sector is expected to contribute approximately 6.3% to the economy
in 2013-14. Additionally, this sector is expected to provide employment opportunities to about 7.6
million people during the same period.
This compares well with the contribution of other essential sectors such as Information Technology
(7.5%)13, Steel (2%)14, Electricity, Gas and Water Supply (2%)15, Mining and Quarrying (2%)16 and
Telecommunications (2%)17.
13%
In 2013
In 2025
The economic contribution of the real estate sector is projected to increase significantly during the
period, from 6.3% in 2013 to almost 13% in 2025. This spiralling of growth can be attributed
to the significant construction opportunities offered by the housing sector, largely accentuated by the
intensifying demand for residential space in the expanding urban limits of our cities.
20
17.2
18
16
14
Million persons
11
12
10
7.6
7.9
8.6
9.2
9.9
10.6
11.4
12.2
13.1
14.1
15.1
16.2
6
4
2
0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
The real estate and construction sector would continue to remain one of the largest employers in the
economy. Annual employment opportunities generated in the sector are expected to increase by more
than 200%, from 7.6 million in 2013 to almost 17.2 million in 2025, offering tremendous
opportunities for socio-economic transformation in our urban centres and supporting the government
in bridging the employment gap in the country more effectively.
9
8
7
Billion sft
6
5
3.6
3.8
4.1
4.4
4.7
5.1
5.5
5.8
6.3
6.7
7.2
7.8
3
2
1
0
2013
2014
2015
2016
2017
12
2018
2019
2020
2021
2022
2023
2024
2025
Increasing urbanisation, demand for new housing, expanding spread of organised real estate and
introduction of new construction technologies are some of the factors that are likely to be a pivot for
the growth of real estate construction activity in the country. The annual real estate supply in India is
expected to increase from about 3.6 billion sq ft in 2013 to about 8.2 billion sq ft in 2025.
Majority of this space is expected to be concentrated in the residential sector, with an underlying thought
that a sustained focus would be provided by the government not only towards bridging the existing
housing shortage in the country, but also towards developing new housing in the expanding urban limits
of our cities (especially the tier II and tier III cities).
Indias rapid urbanisation has fuelled demand for housing and support services across the country.
However, the urban limits of our cities are often constrained by slow and uneven release of land parcels
for development. These supply bottlenecks can be resolved through concerted efforts such as permitting
higher density developments by increasing FSI norms, releasing land parcels for development on a
sustained basis and encouraging private participation in land aggregation. Recent steps taken by the
Delhi Development Authority (DDA) to implement a policy of land pooling in new development zones of
the city, allowing owners to cumulate their land parcels and develop the land jointly with private players
is an example of efficient management of supply dynamics in our urban centres.
Easing of Funding
New instruments of funding should be permitted for the sector, amongst the most prominent of which
are the Real Estate Investment Trusts (REITs). REITs could provide an additional exit route for investors
and enable retail money to be channelized into the sector through a regulated network. The introduction
of REITs would propel the sector by spurring capital inflows and bringing institutional credibility. Other
key steps that can be undertaken to promote funding for the sector include expanding the credit limit for
realty projects from the present 2.8% to as high as 25-30%, reducing borrowing costs for developers
(especially from banks and non-banking financial companies) and reduce the risk weightage attached
to the sector. These measures can be further supported if the government provides an infrastructure
status to real estate projects (particularly large integrated townships). This will help the sector in securing
long term loans at lower cost, and also avail the tax benefits provided to infrastructure sectors such as
power and railways.
14
03
CONCLUSION
There is no doubt that Indias real estate sector is poised for significant growth, thriving upon opportunities
such as growth in income levels, increasing urbanisation and demand for new housing. With a share of
6.3% in the countrys Gross Domestic Product, the sector makes a sizeable impact on Indias economic
growth, both in terms of employment generation as well investment creation. However, this footprint is
restricted by numerous challenges inhibiting the sector such as high borrowing costs, lack of institutional
funding, lengthy approval processes and slow & uneven infrastructure development.
Once these bottlenecks are addressed, we can expect the economic contribution of the sector to increase
considerably, with its share of the GDP to more than double from 6.3% in 2013 to almost 13% by 2025.
This will be a direct consequence of the voluminous construction churn generated by the projected
completion of more than 8.2 billion sq ft of real estate space in 2025, up from about 3.6 billion sq ft
in 2013. Additionally, the sector is expected to contribute significantly towards bridging the employment
gap in the economy, by generating employment opportunities for almost 17 million people in 2025.
However, this projected expansion of the real estate sector can be achieved at an earlier stage before
2025, if the government provides relevant policy measures to create a more conducive environment for
growth in the sector. CBRE has provided a set of recommendations to assist the sector in achieving its
full potential in the long term. An effective implementation of these recommendations will undeniably
push the growth of the sector to a higher trajectory.
15
About CREDAI
Established in 1999, The Confederation of Real Estate Developers Associations of India better known as
CREDAI is the apex body for private real estate developers in India, representing over 9,000 developers
covering 22 states and 128 city chapters across the country. CREDAI has worked hard to make the
industry more organized and progressive by networking closely with government representatives, policy
makers, investors, finance companies, consumers and real estate professionals.
Following are the major objectives of CREDAI
To perpetuate an ethical code of conduct, which is self imposed and mandatory for all members,
to maintain integrity and transparency in the profession of real estate development
To represent developers/builders across India by communicating and representing with government
authorities for the formulation of proactive policies for this profession
To encourage and support the developments/builders to increase their efficiency in the development/
construction activities by introducing latest technologies
To disseminate the data, statistics and other related information in this profession of real estate
development
To promote the interest of construction workers and to educate them on the best practices
To encourage research in the profession of construction and real estate development
To facilitate easy housing finance availability by working in close coordination with the leading house
finance institutions and banks
Being on board of prestigious committees of the sectors reforms like on the panel of Housing and
Habitat Policy 2007, Steering Committee for Urban Developing, the committee of Housing and
Poverty Alleviation for the 11th Five-Year Plan along with various committees of the Bureau of Indian
Standards, Bureau of Energy Efficiency, Planning Commission and others have resulted in CREDAIs
initiative of abolition of urban land ceiling, rationalization of stamp duty, the modification of the
environmental impact assessment rules, several amendments related to service tax, Land Acquisition
Policy and much more. CREDAI also represents the Steering Committee on Construction for the 12th
National Plan (2012-2017).
Linking private real estate developers to the government and customers through numerous initiatives
and activities, CREDAIs success in bringing the majority of organized private real estate developers
under a single umbrella is a potent force that promises the rapid development of the realty sector, one
that knows itself as a major driver of Indias economic growth.
Confederation of Real Estate Developers Associations of India
CREDAI - National Secretariat, 703, Ansal Bhawan, 16, K.G. Marg, New Delhi 110001
Ph: 011 - 43126200, 43126262, Fax : 011 - 43126211
Email: sghoshal@credai.org
www.credai.org
16
Contacts - CREDAI
Lalit Kumar Jain
Chairman (CREDAI)
Confederation of Real Estate Developers Associations of India
chairman@kul.co.in
Contacts - CBRE
Harish Nair
Director (Consulting)
CBRE Consulting, India
harish.nair@cbre.co.in
Vidhi Dheri
Assistant Manager (Research)
CBRE Consulting, India
vidhi.dheri@cbre.co.in
Abhinav Joshi
General Manager (Research)
CBRE Consulting, India
abhinav.joshi@cbre.co.in
Sachi Goel
Senior Associate (Research)
CBRE Consulting, India
sachi.goel@cbre.co.in
Amritha Marshall
Manager
Corporate Communications
CBRE South Asia Pvt. Ltd
amritha.marshall@cbre.co.in
CREDAI Disclaimer
Although every effort has been made in compiling and checking the information given in this publication to ensure that it is accurate, however the authors, the publishers and their employees or
agents shall not be held responsible for the continued accuracy of the information or for any errors, negligence or otherwise howsoever or for any consequence arising therefore.
CBRE Disclaimer
CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not
verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented
exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.