Indian Real Estate: Infrastructure and Inflation Takes the Toll

By: George Gonigal

Lack of adequate infrastructure and sky-rocketing inflationary trends have resulted into speculation across all the sectors of the economy and real estate is one of the worst hit. Thankfully, the Government has taken various proactive steps to curb inflation and to drive out speculative investment, says Anuj Puri, Chairman and Country Head, Jones Lang LaSalle.

Speaking on the current state of Indian real estate, Puri said, "Regulators and progressive incentivisation schemes for townships and Special Economic Zones (SEZs) will help steer the boom in more constructive directions. We are also on the verge of seeing the introduction of REIT-style investment routes to funnel in additional and sustained foreign funds into the sector."

As highlighted in various researches and studies, there is an existing shortage of 25 million residential units in India. The residential property sector in India will continue to be the driving force. Almost 91 percent of all real estate investments in India are in the residential sector.

As far as commercial real estate is concerned, each year witnesses the development of approximately 60 million sq ft of office space. There has been a slowdown in absorption but no sign of increasing vacancies. In the retail context, over 300 shopping malls are under construction and will be operational by the end of 2008. Each year sees the development of approximately 25 million sq ft of retail space.

As Puri pointed out, there is a clear need for schemes specifically designed to put in much-required infrastructure, and further incentivisation of affordable housing projects to encourage developers to address the monumental demand for residential properties from the middle class. The sector also needs the benefit of single-window clearance provisions for progress-oriented projects.

Notably, Indian real estate is still among the biggest growth drivers of Indian economy. Foreign players will continue to invest in India and go slower on low-priority markets, especially the developed ones where investments take longer to pay off. There are, for instance, immense opportunities in Indian retail. The segment of India's more affluent shoppers is 6 million strong - a segment that spends approximately $28.36 billion annually. India still maintains its ranking as the 5th most attractive of all emerging retail markets in the world.

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