An article about " Factors which affect Real Estate in India "

Factors which affect Real Estate in India

A number of small players have customarily dominated the Indian real estate sector and the levels of transparency have been low. There has been a limit on inflow of institutional capital in the sector which has used financing by high net-worth individuals as the main source of capital. As the country is being integrated with the world economy this situation has changed very fast as it is seeing much higher growth rates and genuinely enhanced quality expectations.

Some of the main qualities of the Indian real estate sector are as follows:

Having local know-how is crucial for its success in the phase of development. Local leaders have emerged out of the crucial nature of local know-how and relationships that ensure success and timely growth. Every development depends on many local clearances, e.g.municipal, water, electricity, corporation that needs robust relationships. The market is greatly disjointed and governed by regional players.

Speedy growth during the past decade has witnessed 'larger players' emerging who have distinguished themselves by superior execution and branding. They are operating in local or regional markets. For instance DLF and Uni tech in Delhi and Gurgaon as well as Hiranandani and Raheja in Mumbai have come up as leaders.

Residential development is financed mostly via mortgage loans as the majority of developers utilize mortgage money for their residential projects. Besides that the other chief source of finance is by large property brokers.

The sector has been encumbered by high transaction costs such as stamp duty which varies state wise. Poor liquidity in the market has been the consequence of these transaction costs. They have also caused important cash transactions to lessen the stamp duty burden that is high, being 9% in some states.

Although the unorganized sector makes up nearly 70% of the housing units built, organized players like large builders and government bodies are there mainly in the major metros and urban markets.

The chief segments of this sector consist of residential, commercial and retail. The hotel segment is looked upon as a part of the real estate sector sometimes. Here we are considering only the residential, commercial and retail segments.

The largest segment in the real estate sector is the residential segment and after it come commercial and then retail segments. It is estimated by industry sources that around 80% of the real estate sector is composed of the residential segment.

As the economy was liberalized the real estate sector in India became important. Increased business opportunities and migration of the labor force has also enhanced the demand for commercial and housing space particularly rentals. These developments are being impacted by developments in the hospitality and entertainment (hotels, resorts, cinema theatres) industries, economic services such as hospitals and information technology-enabled services such as call centers and the other way around.