Value of India real estate: sprint to marathon

December 3, 2012 / By  

In mid-2010, India’s investment grade real estate that was under construction joined the 100-billion-dollar club. Currently, the value of the investment grade real estate in India that is under construction is estimated to be USD 173.9 billion (nearly 35% more than Vietnam’s nominal GDP), a figure that has grown from USD 160.1 billion in 2Q11 and USD 101.3 billion in 2Q10. Following a steep rise of 58% y-o-y during 2Q11, the past 15 months have seen the value of these projects grow by a mere 8.6%. Rising input costs in recent quarters and an unenthused macro-economic sentiment have led to relatively fewer new construction starts in the sector compared to 2010. Between then and now, the country’s real estate market has traversed from a great deal of positivity to uncertainty. With 2012 nearly through, it hard to deny that it has been a forgettable year for the Indian realty market.

Source: Real Estate Intelligence Service, Jones Lang LaSalle

The market value of the commercial (office and retail) real estate that is under construction is USD 41.6 billion. The commercial office space that is under development contributes approximately 78% to the estimated market value of the commercial sector. The nominal decrease in supply, which was offset by a marginal rise in capital values, caused the share of the market value of commercial (office and retail) assets that are under construction to remain range bound to the figures estimated in 2010 and 2011. As the number of malls that were under development dropped and the size of malls increased, compared to 2Q11, the market value of retail assets that were under construction remained unaltered during 3Q12.

The Tier I cities of Mumbai, NCR-Delhi and Bangalore contribute approximately 67% to the market value of the commercial office space that is under construction, while the Tier II cities of Chennai, Pune, Hyderabad and Kolkata contribute about 17%. Other investment grade developments in Tier III cities contribute about 16% to today’s Pan-India market value. With infrastructure developments and relatively lower real estate costs, the share of the market value of Tier III cities grew from 9% in 2Q10 to 16% presently. While Tier I cities have contributed about 58% of the commercial retail space that is under development, Tier II and Tier III cities supplied approximately 27% and 15%, respectively.

Unlike the commercial sector, due to the increased construction activity and rapid recovery of property prices since their trough levels in mid-2009, the contribution of the residential sector has grown The market value of residential real estate that was under construction increased from 66% in 2Q10 to 76% in 3Q12, touching USD 132.3 billion, a figure that nearly doubles the levels seen in 2Q10. While NCR-Delhi has the largest volume of residential properties currently being developed, Mumbai contributes a larger share to the market value. Aided by its self-liquidating nature and the high demand for housing in India, the resilient residential sector has been the focus of developers and investors.

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