Construction and Real Estate Sector

Next to Agriculture, Real Estate is the second largest employer in the economy. It comprises of four sub-sectors – housing, retail, hospitality, and commercial. While housing contributes to five-six percent of the country’s GDP, the remaining three sub-sectors are also growing at a rapid pace, meeting the increase in infrastructural needs.

Responsible for 7-8 percent of global cement production, India is the second largest cement market in the world, and also an exporter to 30 countries. According to the Cement Manufacturers’ Association (CMA), there are 39 large cement plants and 365 mini and white cement plants in the country.

Overview

With a market size of USD 66.8bn, the Real Estate sector contributes around 5 percent to the nation’s GDP. While the market is growing, there remains a housing shortage across both urban and rural areas, estimated to be 20.5 million and 26 million respectively. This demand for residential space is projected to grow sharply at a CAGR of 19 percent in 2010-2014. Currently, there are few big players like DLF and Unitech that drive this segment.

Commercial space demand is arising from metro cities like Delhi-NCR, Mumbai and Bengaluru, and will see an upward trend at a CAGR of 7 percent between 2010 and 2014. Few large players dominate the market and hold pan-India presence. However, the overall business in this domain is witnessing a shift from sales to lease and maintenance.

Though retail space accounts for a small portion of the overall real estate market and organised retailers are few, increasing collaborations between international retail brands and Indian partners is likely to promote a strong growth in the retail space.

Hospitality market comprises hotels, service apartments and convention centres. NCR and Mumbai remain the biggest hospitality markets in India.

The cement industry in India is divided into five geographical segments, wherein the North and South regions are the leading suppliers of cement. The East, West and Central regions face deficit of cement, thereby relying on purchases from the North and South. Leading players in this sector (by market share) are Shree Chem, Ultratech, Ambuja, Binani, ACC, India Cem, Dalmia Cem, Madras Cem, Lafarge, and OCL India.

Factors that will drive growth in this sector

• Robust economic growth is driving the demand for commercial property. Urbanisation and growing household income is boosting demand for residential real estate.
• Hospitality space is gaining from increased flow of foreign tourists to the country (CAGR of 6.6 percent during 2005-10).
• FDI in real estate and construction is on an uptrend, accounting for 22 percent of total FDI. 110 deals were closed in the sector between 2001 – mid 2011.
• Housing segment growth is leading to higher demand for cement for homebuilding.
• Government’s 12th Five Year Plan focuses on increasing infrastructure (upgraded airports, ports, railway expansion, etc.) to drive construction activity.
• Rise in commercial and retail spaces, along with hotels in near future, will account for increased demand for cement.

Government initiatives

Introduction of few policies by the Government is allowing the growth of the real estate and construction sector:

• Housing finances are becoming feasible with the housing loan limit being raised to US $52080 for priority sector lending.
• US$ 625 million have been allocated for the Rural Housing Fund to provide homes to economically weaker sections.
• FDI up to 100 per cent is allowed with government permission for developing townships and settlements. FDI up to 100 per cent is also allowed in hotel and tourism sector through automatic route.

Demand for professionals

CMA predicts that cement production of one million tonnes will generate downstream employment for 50,000 people. According to the 'Real Estate and Construction Professionals in India by 2020' study by Royal Institute of Chartered Surveyors (RICS) in November 2011, there is a demand-supply gap in the order of 82-86 percent in the number of professionals and the skill sets for the core, namely civil engineering, architecture and planning. The study indicates a supply-demand gap of 44 million core professionals by 2020.

Courtesy - shine.com