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Breaching All Boundries

Despite the continuing turbulence and uncertainty in other parts of the globe, two economies – India and China – will continue to grow at an annual rate of 8-10%. In fact, by 2020 India will become the 3rd largest economy after China and the US.

What will give India’s economy such an edge over the next decade? Actually, it enjoys many advantages that encompass an ever-increasing per capita income and a concurrent domestic consumption pace, which nevertheless leave in their wake a substantial rate of annual savings. Moreover, India’s infrastructure investments will have increased massively by 2020, significantly enhancing its attractiveness for investment.

The implications of such growth potential on the Indian real estate industry are fairly obvious. There is, beyond any doubt, a staggering opportunity in the Indian property sector over the next decade. The writing is on the wall even now – consider the fact that the value of investment-grade real estate under construction in the country crossed $100 billion at the end of June, 2010. Only China can compare with India on this count.

Another chapter in India’s rapidly developing success story is the IT sector, which has been a major driver of the country’s economic growth over the past few years. By 2020, the current size of the IT / ITeS market in India will have grown from the current $67 billion to $225 billion. Simultaneously, the markets for hardware and electronics will increase from the existing $45 billion to $400 billion. In fact, domestic banks will have to scale up their asset sizes five times over next 5 years in order to cope with this increasing demand.

This trend will reflect very visibly on the Indian office real estate market, which is already on an encouraging upswing. Demand for commercial properties in India has already doubled from a low of 20 million square feet to 40 million in 2011, and is going to increase to 45 million square feet by 2012. 2011 is, by any yardstick, the best year ever for India in terms of commercial space, and the trends that are now driving it will multiply exponentially by 2020.

At the same time, the Indian retail market will once more emerge as a major force driving Indian real estate. This market, which is now valued at $500 billion, will rise to a value of $900 billion by 2020. Organised retail, which currently accounts for only 5% of the total market, is increasing by 15% every year. It will move from its current value of $25 billion to $250 billion by 2020.

This rate of growth is going to translate into massive additional requirements for retail space over the coming years. Demand for retail real estate rose from 4 million square feet in 2010 to 11 million square feet in 2011. If we factor in the spiraling aspirations of Indian shoppers, the constant development of new residential catchments, townships and satellite cities, the real estate demand from Indian retail by 2020 can well be imagined.

Demand for additional residential real estate, which is the traditional mainstay of the Indian property market, is going to go through the stratosphere over the coming years. Even now, the Ministry of Housing estimates that we will be looking at a shortfall of 26 million residential units by 2012. This deficit will only increase with the country’s current rate of population growth, which is further bulwarked by the increased lifespan brought on by improved medical care in the country. It is anticipated that India will add another 215 million people to its cities by 2025.

Nor will the hospitality sector lag behind. In terms of business in almost every sector, India now enjoys an unshakable reputation as investment destination par excellence. The country’s rising GDP and increased pace of global business alliances are the primary market drivers in the hospitality sector. Thanks to promotional exercises such as the Incredible India campaign, India also features high on the global leisure traveler’s priority list. The upshot is that the travel and tourism market in India is expected to grow from the $144 billion it was valued at in 2010 to $431 billion by 2020. In the next four years alone, the branded hotel industry is going to witness an addition of 60426 rooms.

Indian real estate will also see massive demand contributions on the industrial front. The country’s industrial growth is geared to quadruple in scope and reach a value of $225 billion by 2020. Interestingly, organized warehousing alone will constitute 20% of the overall sector by 2015.

Finally, two sectors that did not figure on anyone’s radar just a few years ago are now going to account for unprecedented real estate demand over the next decade:

The first is the education industry, which is very likely to cross $70 billion in value by 2015. The coming four years will see an addition of about 16 million square feet. The second is the Indian healthcare sector, which has been growing in leaps and bounds (not least of all boosted by the medical tourism industry which brings over 100,000 foreign patients to Indian shores each year).

The resulting demand for excellent medical facilities has been a significant component to the growth of healthcare in India. Overall, this sector is expected to grow in value from the current $144 billion $280 billion by 2020. Over 150 hospitals are scheduled to open their doors over the next four years alone, and this will by itself account for approximately 22.5 million square feet of healthcare-related real estate.