The growth of foreign investments in the real sector will come from the growing interest of global real estate players in the Indian real estate market and increasing demand of office space particularly in the IT and BPO sector.

The report also says overseas investments will also find larger presence in Indian SEZs and shopping malls that will naturally fatten their share in real estate market.

It says that the real estate market is currently growing at 30 per cent per annum and offering maximum returns to investors. The domestic real estate market, which is presently estimated at $16 billion (Rs72,496 billion), will increase by over by three and a half times and touch $60 billion (Rs271,860 crore) by 2010.

Since, ASSOCHAM expects cut throat competition to emerge between domestic and overseas investors in real estate, the study forecasts that of the estimated $60 billion size of the real estate market in India, the share of foreign investments will be

FDI IN REAL ESTATE IN INDIA (in US$ billion)

between $25 and $28 billion by 2010 (Between Rs113,25 crore and Rs126,868.

In 2003-04, India received total FDI inflow of $2.70 billion (Rs12,233 crore), of which only 4.5 per cent was committed to real estate sector. In 2004-05 this increased to $3.75 billion (Rs16,991 crore) of which, the real estate share was 10.6 per cent.

However, in 2005-06, while total FDI in India was estimated at $5.46 billion (Rs24,739 crore), the real estate share in them was around 16 per cent. The study, nevertheless projects that in 2006-07, total FDIs will touch about $8 billion (Rs36,248 crore) in which the real estate share is estimated to be about 26.5 per cent.

According to Anil K Agarwal, president, ASSOCHAM, leading international investors like Royal Indian Raj International, Blackstone Group, Goldman Sachs, Emmar Properties, Pegasus Realty, Citigroup Property Investors, Lee Kim Tah Holdings, Salim group, Morgan Stanley and GE Commercial Finance Real Estate are showing a keen interest and establishing their presence in Indian real estate.

Office property market
Study on Future of Real Estate Investment in India also notes that the office property market in India will witness a further boom on account of the demand for modern office buildings in India. In the last two years, the capital values of the commercial office spaces have increased by 40 per cent.

The requirement for office spaces alone will grow to over 19 million sq.ft in 2006-07 from 4 million sq.ft in 1999-2000. The IT and BPO sectors alone will account for approximately 75 per cent of the demand, which by 2010 would escalate to 200 million sq.ft in major metros.

Housing market
India will have a demand-supply gap of 17.9 million housing units by 2010. Capital values in residential sector have risen by between 25 and 40 per cent per annum in the last two-three years. According to the 10th Five Year Plan, of a shortage of 22.4 million dwelling units, more than 70 per cent were for the middle and low income brackets. Additional requirement of housing per year during the plan period 2002-2007 has been estimated at 4.5 million units per year.

ASSOCHAM also holds that the number of malls in Kolkata, Mumbai, Bangalore, New Delhi, Hyderabad and Pune will grow to 300 in numbers by 2010 as against their present strength of 50. In terms of total area, there was 12.40 million square feet of mall space available in these cities.

Retail market
The retail market in India has been growing due to increasing demand from retailers, higher disposable incomes and shortage of quality space as on date. The capital appreciation in this sector is close to 20-35 per cent per annum. The organised retail segment is expected to grow from a mere 2 per cent to 20 per cent by the end of the decade.

FDI in development of SEZs
India's SEZs seem to be the new destination for real estate investors. Of the around 150 approved SEZs, 85 are in the IT-ITeS sector and 10-15 in the electronics area. Real estate developers are developing nearly 130 SEZs, constituting 50 per cent of the total SEZ area. However, the manufacturing and engineering sector has a mere 17 SEZs in the approved category in Haryana, Karnataka, Punjab, Maharasthra, Andhra and Gujarat.

According to ASSOCHAM, IT SEZs could be developed and made operational within six months from the date of notification. Thus over 130 approved IT sector SEZs would immediately result in an investment of $9 billion (Rs40,779) to $12 billion (Rs54,372 crore) resulting in massive employment generation.

The study also says that the massive flow of FDIs in the Indian real estate sector has started growing as China's real estate market shows signs of reaching saturation point and also because foreign investors prefer investing in freehold land, which is available more freely in India.

The report has, however, pointed out that stringent clauses are still restricting free flow of FDI in the Indian real estate market. Given the internal rate of return on capital investments in India, the country should have attracted far more FDI than what it has until now. But lack of flexibility in policy is a constraining factor.

Study on Future of Real Estate Investment in India concludes that the introduction of REITs would provide a further boost to the real estate industry. This would result in increased rental housing generation and also raise cheaper funds for this sector. REITs would also provide an opportunity for small investors to access commercial property returns (at present 9 per cent to 10 per cent per year) that are now unavailable without significant capital outlays.

REITs could also foster improvement in investors' portfolios by diversifying the investment base and increasing the stability of income sources. Instruments like equity, mortgage and hybrid REITs can offer investors high yields as well as liquid methods of investing in real estate.

The establishment of a REIT industry would provide a much-needed capital infusion to India's underdeveloped real estate market. There are numerous sources of capital that would welcome a REIT investment option. India's GDP is currently around $850 billion (Rs3,851,350 crore) and is growing at an average rate of 8 per cent. Additionally, household savings are growing at an estimated 15 per cent, and this source of investable capital should reach $392 billion (Rs1,776,153 crore) by 2010.