India Real Estate Report Q3 2010

India Real Estate Report Q3 2010 ; Of all the countries whose real estate sectors are reviewed , few are experiencing economic conditions quite as promising for real estate companies as India. We forecast that overall GDP growth will accelerate from 7.0% to 7.8% over the coming year. The increase will be driven by domestic demand. Lending by India's banks is increasing again. Massive investment in infrastructure will, or at least should, facilitate urban development. After a poor monsoon and harvest in 2009, the fortunes of India's rural sector should also improve this year.
Nevertheless, India's developers still face difficulties. Across the five cities where we interviewed incountry sources - Mumbai, Gurgaon, Chennai, Hyderabad and Bangalore - rentals slumped in 2009. In some cases this was because of the perceived risk of a recession in India (or, in the case of Bangalore, a real recession in the export markets served by businesses in that city). In other cases, contradictory government policies posed additional problems.

Construction sector gets tax concession

In a relief to realty sector and home buyers, Finance Miniser Pranab Mukherjee on Thusday announced tax concessions to the construction sector, which was brought under the ambit of service tax in this year's Budget.
With today's announcement, service tax would be levied on 25 per cent of the gross sale value of property compared to 33 per cent proposed in the budget in February this year. "I propose to provide the tax relief to this (construction) sector by enhancing their rate of abatement from 67 per cent to 75 per cent of the gross value, where such value includes the value of the land constructed upon,"
Mukherjee said replying to the debate on Finance Bill in Lok Sabha.
This means property prices would rise by a lower than expected 2.5 per cent. To give thrust to the low cost housing schemes for the urban poor, he announced exemption of service tax on constructions under Jawaharlal Nehru Urban renewal Mission
(JNNURM) and Rajiv Awas Yojna.
Real estate developers as well as Urban Development Minister S Jaipal Reddy had asked the Finance Minister to review the proposal, saying that the proposal would hit the sector which is recovering from a huge slowdown in demand. In Budget 2010-11, the Finance Minister brought development of real estate complexes under the ambit of service tax. "In the construction of complex services, it is being provided that unless the entire consideration for the property is paid after the completion of construction (i.e. after receipt of completion certificate from the competent authority), the activity of construction would be deemed to be a taxable service," says the Budget proposal. Post-budget, Finance ministry officials had clarified that service tax would be imposed on 33 per cent of selling price as there is an abatement of 67 per cent.

Is Indian Real Estate Industry in an Unpredictable Growth?

Many are of the view that Indian real estate industry is in an unpredictable growth. In fact, a little while ago the industry was in a slump due to the recession that has swept across the world.So far as the Indian property market is concerned,the slump was only a transient phenomenon. Now, the market is back in the saddle and the real estate scenario is agog with deals and talks.And the new climate augurs well for the prospective investors.Reportedly,in the preceding quarter the price of prime commercial property in the metros and main cities across India has registered on an average 10 percent increase which is by and large a welcome change after months of recessionary market.Alongside, residential property market in the lower and middle income level sector has shown a marked increase in demand.Investment analysts and industry veterans are savvy as to a sustainable growth in the market in the coming future.

In order to arrive at any conclusion as to whether the Indian real estate industry is in an unpredictable growth or not, we need to appreciate facts in a wider perspective. Arguably,there is an overall growth in the property sector across India. The contention is as to whether or not this growth is susceptible to the vicissitudes and vagaries of market conditions in an unpredictable way.While we consider the strengths of the real estate market, we have to take into account the emergence of India as a major consumer market in the world.Necessarily,of late there is higher concentration of multinational corporate operations in India than ever before.Inevitably,this acts as major catalyst for a higher demand for both commercial and residential properties in India now.

Whether the Indian real estate industry is in an unpredictable growth or not is a matter to be analyzed vis-à-vis the findings of industry experts and economic analysts.Industry veterans are sanguine to hold that the real estate Indian industry is poised for great strides in the coming future. Reportedly, the industry is undergoing a metamorphosis. Sector-specific and macro-economic factors are the contributory elements in this growth phase. Jones Lang LaSalle, the world-renowned real estate analyst categorically maintains: 'economic recovery during CY 2010-11 is likely to reinvigorate the interest of foreign investors in India's real estate market. We expect enhanced capital inflow in the real estate sector in the medium-to-long-term'. Further, the International Monetary Fund has reported that while the advanced economies of the world will register an average 3.8 percent retrogressive growth in the coming years, India and China will record an average growth of 5.4 per cent. This growth in the national income will directly sustain the growth in the real estate industry.