India's realty sector to be $50 bn industry by '10

Increasing spending by India's middle class, which some estimate is over 300 million-strong, will propel growth in the country's real estate sector from the current $12 billion to $45-50 billion by 2010, a study said.

The study by global merchant banker Merrill Lynch also predicted that higher spending, as a result of increased income levels, would push up growth in India's retailing industry from $4 billion at present to $15 billion by the next five years.

"Ongoing buoyancy in consumption spending arising from the changing demographics and resultant rise in income levels has resulted in strong demand for quality housing and a distinct consumer preference for value-added products across the retail spectrum," the study said.

On the realty sector's multiplier effect with respect to rest of the economy, it said of every rupee spent on construction sector, an estimated 75-80 per cent was added to the country's gross domestic product.

Rapid development of infrastructure facilities and taking forward the reform process, including allowing 100 per cent FDI in retailing, are the key facilitators required to sustain the high growth in these sectors.

However, the realty sector has had to grapple with issues of high transaction costs, lack of transparency and fragmented developers, recent events are making us more optimistic that the sector could also be poised for rapid growth.

Merill Lynch welcomed the government decision for allowing 100 per cent FDI in real estate, hailed the strong growth in retailing, adoption of corporate governance by developers, sustained buoyancy in housing and modifications in the land ceiling act, repeal of urban land ceiling act and rationalisation of the property tax.

"As these factors gain dominance, especially the reforms and FDI, it could result in an estimated 25-30 per cent growth in the real estate sector," it said. The study projected the realty sector's potential to touch even $90 billion in 10 years.

The growth of organised retailing sector would, however, be in part dependent on the government facilitating 100 per cent FDI in retailing.

The growth would also depend on providing the necessary supply chain infrastructure and the relatively high cost of real estate - all of which continue to be constraints in the rapid growth of organised retailing in India.