Young spearhead India's realty boom

It is said that India's young, who form the majority of the population, are spearheading the country's economic boom.
This was underlined by a recent study by industry body Associated Chambers of Commerce and Industry of India (ASSOCHAM), which says that the average age profile of house owners in the country has come down by nearly 20 years, a very big drop.
According to ASSOCHAM, the average house owner age has declined to 30-38 from the 55-58 that prevailed 15-20 years ago. India's economic reforms and liberalization program were launched in the early 1990s.
In its analysis, "Emerging Age Trends for Buying Dwelling Units for Self-Use", ASSOCHAM says the main reason contributing to this trend is rising income due to growing job opportunities, especially in the services sector.
Long-term home loans, which are easily available, have also made building houses a sustainable proposition. Given inflation and tax breaks on such loans, the effective interest costs are much cheaper.
Other factors include high rentals, non-sustainable lease agreements between property owners and tenants and the rapid growth of the private banking sector are contributing to the easier financing. According to ASSOCHAM president Venugopal Dhoot, "Twenty years ago, not many people in the working class purchased property as a majority of them chose to settle in their native place. Today's youngsters prefer having their own home."
And the demand will be high. It is estimated that close to 2 million Indian households earn more than US$100,000 a year, with this number expected to rise to over 5-7 million soon.
A huge number of them are young professionals from fast-growing sectors such as software, telecoms, retail, hospitality, civil aviation, auto and construction.
This week, Finance Minister Palaniappan Chidambaram said India's per capita income is expected to rise to $1,000 at the end of this fiscal 2007-8, from $800 in 2006-7, if the country's 9% annual growth is sustained. This is more than double the income level in 2000-1. Chidambaram also predicted that India will be a middle-income nation by 2015.
Non-Resident Indians (NRI), who remit over $25 billion to India annually, the largest remittance amount globally, are also major purchasers of real estate. According to the Reserve Bank India, the acquisition of shares and property by NRIs has risen from $930 million in 2004-05 to $2.2 billion in 2005-06 to $6.3 billion in 2006-07.
According to recent estimates, private equity (PE) investments in India have grown to $10 billion this year from $2 billion in 2005, thus overtaking China, which has recorded $8.3 billion. The real estate and infrastructure sectors have emerged as the favorite of PE funds, garnering almost 50% of the inflows.
Residential building only forms a part of the enormous construction boom sweeping the country. It is estimated that the construction industry, currently valued at $70 billion, will rise to $150 billion by 2011, requiring manpower of close to 100 million.
The sector employs about 30 million people at present, so it will provide enormous direct and indirect job opportunities for skilled and unskilled workers alike, according to another recent study, "India's Construction Industry: Growth, Opportunities and Constraints," by ASSOCHAM.
The sector's contribution to gross domestic product will grow to 4 %. According to ASSOCHAM, the government will directly invest about $150 billion in the next five to six years for the development of infrastructure, of which $60 billion will be for roads and highways, apart from ports, power and airports.
This year, the federal government formally approved the $100 billion Delhi-Mumbai industrial corridor, India's largest infrastructure project to be built with the help of Japanese financiers, who will contribute almost a third of the investment.
The first phase of the 1,500-kilometer project, from January 2008 to 2012, will include six mega investment regions of 200 square kilometers each. The second phase will span 2012-2016 and aims to strengthen the industry hub and integrate its areas further.
This $100 billion investment is a big chunk of the estimated $320 billion in the short term and over $500 billion in the medium term that India needs in the infrastructure sector and which the government has committed to generate via various public-private participation models.
Specific high-growing sectors, such as the telecom, civil aviation and retail industires, will also push construction.
The telecom sector is predicting an investment of up to $10 billion by 2015-17 and young people contribute largely to it with the 6 million cell phones that are sold in the country every month.
The civil aviation sector is predicting $4 billion worth of investment within the next decade for construction and airport improvements. New airports are being built in Bangalore and Nagpur, while massive expansions are under way at Delhi and Mumbai.
The Indian retail market, estimated at $450 billion, has been witnessing frenetic activity with the entry of big players such as Bharti Enterprises (investment plans of $2.5 billion), Reliance (investment plans of $5.5 billion) and foreign players, including Wal-Mart.
The share of organized retail, that directly impacts construction due to the building of retail space in the form of malls, is estimated to rise to 20-22% from the current 4%, to become a $90-billion industry.
The initial success of tax-free industry enclaves will also contribute to construction's growth. New Delhi has been steadfast about building a case for special economic zones (SEZs) for manufacturing.
The first year of such efforts promises much, with SEZs likely to emerge as major engines of growth. According to the latest official figures, since the SEZ Act was formalized in February 2006, 22 SEZs have begun functioning, employing over 50,000 people, mostly from local areas.
In the 2006-07 financial year, SEZs exported goods worth Rs330 billion (over US$8 billion), approximately 6% of India's total exports. This year, SEZ exports are expected to double to over Rs670 billion and cross the Rs1 trillion-mark next year.
The government expects investment of over Rs3 trillion to flow into the SEZs, with potential to generate 3-4 million jobs, both directly and indirectly, by 2009.
Recently, Commerce Secretary G K Pillai said, "We have more or less stabilized the SEZ policy. We expect the investment to go up to Rs1 trillion, creating 100,000 jobs by the end of the year in the 133 notified SEZs."
Siddharth Srivastava is a New Delhi-based journalist.

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