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latest issue

For private circulation only

JULY-SEPTEMBER 2005


Budget 2005 preferred a status quo approach did not have any big picture change for real estate; either positive or negative. Even the widely anticipated withdrawal of tax relief on repayment of housing loan principal and interest was left untouched. A small dampener has come in the form of introduction of service tax on residential complexes having more than 12 dwelling units under the service tax net. There is enough steam in the real estate markets across the country especially in the metros and the smaller towns which will let the market rally go on for more time. The undercurrent of the economy is strong and companies continue to maintain good financial results, investing further in real estate. Interest rates hike of around 0.5% are not likely to make any significant impact on the buying of properties according to surveys conducted in various places. Outsourcing to India continues and will create the big impact on the real estate markets. Residential real estate which has a lag time of around a year to the commercial impact will now boom especially in areas where the IT boom has hit around a year ago. The icing to the cake has come from the pre-budget announcement of allowing 100 % FDI in construction and real estate. Although there are still a lot of restrictions and many conditions too to be fulfilled, this has been more than a good beginning. Suddenly the market is alive with enquiries. Everyone wants to jump into the bandwagon, venture funds, management consultants, bank etc. Each one would like to offer services to their high net-worth customers to help invest in real estate. We at Arora and Associates had predicted the boom in early 2004 to our clients (brushed aside by critics), Today, with average yield in excess of 40% over 2004, most of these clients are happy. However this is not the end. If the macro trends hold good, this is just the beginning. We strongly believe that more freedom from restrictive policies is imperative for the Indian real estate markets. The current ministers and administrators do have a better understanding of all that needs to be done. It is time, they JUST DID IT.

	Key Indian Markets Update FDI in Construction, Real Estate and Retail While buying a property Overview on Real Estate

Key Indian Markets Update

Currently there seems to be a temporary balance in ready-to-use commercial space and demand. Though occupiers would want space at Rs 20 – 25 per sq. ft., they are not willing to compromise on the quality of space. This is good news for real estate. However A&A forecasts that occupiers would definitely pay a premium for any ready to use commercial space with sound infrastructure facilities required for the IT and ITES sectors.

There is a great need of developers who are willing to invest to create such incubation facilities which are ready to move in, across various cities in India for the surge of companies who will be coming in to test the waters and have time to set up facilities.

The Indian IT sector is expected to cross USD 28.3 billion in 2004-05. The ITES segment is expected to record a 20% growth. IT services and software is estimated to post around 59% growth. Employment in the IT sector is likely to cross the 1 million mark this year. ITES sector would be the largest employment generator, staffing around 3.5 lakhs this year from 2.5 lakhs last year. This sector should continue to be the primary driver for real estate in 2005 in most Indian Metros.

The average demand from this sector is estimated to be approx. 25 million sq. ft. this year as against 18 million sq. ft. in 2004. This marks a sharp growth in the demand that stood at 9 million sq. ft. in 2003 and 6.5 million sq. ft. in 2002.

Many Corporates are aiming to maximize their returns from holdings of land and real estate assets. With strong occupier demand pushing up land prices, especially in the suburban and peripheral regions of metro and A-1 cities, companies have realized it is an opportune time to maximize the value of their real estate portfolios.

The leasing demand in the country is reflective of the general optimism across various industries and the generally robust economic outlook. Large number of companies prefer to take position in either independent facilities pre-built for them, or have customized solutions delivered to them especially in the suburbs where plots are available to suit.

Delhi is undergoing a major transformation and it may well become one of the best international cities by 2010. The city is to see three projects which are expected to give a spurt to the real estate market. These are the Metro, Commonwealth Games and the development of the Airport Zone. The Delhi Government has also announced an outlay of Rs 1000 crores for a new power project in Delhi.

ATTENTION INVESTORS AND CORPORATES!
We have a very strong network with developers and land owners in Bangalore, Pune, Hyderabad, Ludhiana and Chandigarh. We cater to any requirements in respect of IT enabled services, retail, corporate, pre-leased investments or residential.