Real estate development in India is estimated to be in the region of US$ 15 billion, growing at a pace of 30 per cent each year. Almost 80 per cent of real estate developed is residential space and the rest comprise office, shopping malls, hotels and hospitals. This double-digit growth is mainly attributed to the Offshoring and outsourcing business, including high-end technology consulting, call centers and programming houses which in 2003 is estimated to have accounted for 10 million square feet of real estate development.

The sustained demand from the Information Technology sector certainly changed the urban landscape in India. It has been estimated that in India, there is a demand for 66 million square feet of IT & ITES space over the next five years. Several multinational companies continue to move their operations to India to take advantage of lower costs. With human resources being the key element in this industry, the hiring and housing of people, both at their work place and home assume great importance and therefore the need to create space for people to work and live, which in turn triggers the development of other related infrastructure. The predominant trend has been to set up world-class business centers, often campus-style establishments, bearing a distinctive corporate stamp. So distinct are some of these locations that they are being termed as the "temples of modern India" - just an indication of the extent of real estate development taking place.

Another case in point is Gurgaon, a suburb of New Delhi, which has seen a radical change in not just its skyline but also in its basic urban demographics. Gurgaon was once described as just a little town built on a cow pasture. But in the past three years, Gurgaon has sprouted six malls - with five more under construction and has a skyline of shiny new office buildings and call centers. Gurgaon is a shopper's paradise and the malls are vertical versions of their US counterparts: five story high bazaars, housing almost every international brand be it Nike, Nokia, Tommy Hilfiger, Levi, McDonalds along with multiplex cinemas, escalators and huge parking lots. The advent of call centers, programming houses and other such BPOs in India has led to an influx of over 785,000 new jobs. Outsourcing has changed the face of commercial real estate in India, but its greater impact has been the demographic shift characterized by rising disposable incomes and increased consumerism.

The real estate market in India predominantly continues to remain unorganized, fairly fragmented, mostly characterized by small players with a local presence. Traditionally, developers were viewed with an element of skepticism. Developers were often identified with dealing with large amounts of unaccounted money, lacked transparency and would use unscrupulous means to obtain various regulatory approvals. Lending to developers was perceived as being risky as builders were known to borrow for one project and utilize it for another or overstretch their limits and not have sufficient funding to complete the building. But things have clearly changed today: for starters, developers have realized the merits of corporatising themselves and enhancing transparency in terms of their financials. While earlier even the reputed builders had difficulty accessing formal channels of credit, today almost every bank and housing finance company has relationship tie-ups with developers and are keen to lend to them at competitive rates. Lenders are also monitoring the projects more closely. For instance, lending to developers is often through an escrow mechanism which ensures that funds are utilized only for that particular designated project. Today specific projects of developers are also being rated. The objective of the ratings is to help the financers as well as the end users to take a decision while investing in a real estate project. The rating system also means a greater amount of transparency and disclosure on the part of the developers.

In 2002, the Government of India permitted 100 per cent foreign direct investment (FDI) in housing through integrated township development. The merits of FDI are well known - it provides the much needed investment in the sector, brings professional players equipped with real estate expertise and facilitates the introduction of new technology. However, the FDI rules in its current form are rather stringent - prior approval of the Foreign Investment Promotion Board is required which admittedly can be rather tedious and there is a lock-in for repatriation of original capital invested for a period of three years. What is rather self-defeating is the stipulation of a minimum land holding of 100 acres. Getting 100 acres of free land in an urban area is almost impossible and consequently barely a handful of projects have been approved. If the minimum area restriction is reduced at least by half and repatriation of profits after the construction period is completed is allowed, FDI in this sector will certainly pick up. In this aspect, I think we have a lot to learn from our Chinese compatriots. Recently, the Securities and Exchange Board of India, India's capital market regulator has permitted venture capital funds to invest in real estate - this augurs well for the industry.  

Why Interactive World?

For you to setup an offshore unit successfully, in time and within our budget, our resources give you a big picture of the overall market and channel strategies, so you can see how to better fit your offshore unit into them. We also advise you on outsourcing options, site selection, agent and manager recruitment & training, and analyzing your center's performance.