The Indian real estate sector plays a significant role in the country's economy. The real estate sector is second only to agriculture in terms of employment generation and contributes heavily towards the gross domestic product (GDP). Almost five per cent of the country's GDP is contributed to by the housing sector. In the next five years, this contribution to the GDP is expected to rise to 6 per cent. According to industry players, housing accounts for 4.5 per cent of gross domestic product (GDP) with urban housing accounting for 3.13 per cent.

The Indian construction industry has been playing a vital role in overall economic development, as its contribution to GDP at current market prices has gone up from 5.3% in FY02 to around 7.8% during FY08. In fact, during FY02-FY08, the sector grew at CAGR of 20.3%

The real estate sector is also responsible for the development of over 250 ancillary industries such as cement, steel, paints etc. A study by rating agency ICRA shows that the construction industry ranks 3rd among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. A unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as five times.

Industry Overview

The construction industry is an integral part of the infrastructure sector and comprises commercial, residential, roadways, ports, airports, SEZ etc. In 2005, the sector generated around 31 million jobs, out of which, the organised sector generated 1.2 million jobs, while the unorganised sector generated the rest. Going forward, taking cue from the Government of India’s ambitious projects lined up for the Eleventh Plan period, the demand for construction is expected to grow by at least 8-9%, and 2.5 million employment opportunities per annum are expected to be generated.

Residex, an index planned to benchmark the housing sector and expected to serve as an indicator of property prices, the housing start-up index (HSUI) planned by the Reserve Bank (RBI) of India aims to indicate the volume of construction taking place in a particular location. The RBI also expects to publish the data by March 2010 for every quarter. HSUI would also serve as a lead indicator of the economy's growth as more houses would require more input materials like cement and steel, labour and credit demand.

This index would be useful for developers as it would help know areas of oversupply. They can hence refrain from construction activity in those areas. In case of an oversupply in a particular location, consumers before investing would wait till prices fall.

By Priti Shah

Laurent & Benon Corporate Stay Solutions