Indian Real Estate Sector : Beyond an Asset Class
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.
Almost 80 per cent of real estate developed in India is residential space, the rest comprising of offices, shopping malls, hotels and hospitals. According to the Tenth Five-Year-Plan, there is a shortage of 22.4 million dwelling units. Thus, over the next 10 to 15 years, 80 to 90 million housing dwelling units will have to be constructed with a majority of them catering to middle- and lower-income groups.
Indian Real Estate Sector : As an Investment Option
Real estate has emerged as an important asset class in recent years in India. Greater transparency, emergence of large national players and entry of organized finance have worked together to make real estate an avenue retail investors can think as an asset class. Real estate offers valuable diversification to an investment portfolio. In most cases it is a dividend paying asset with good appreciation potential. Hence it offers income as well as growth as an asset. Also if chosen carefully, the price risk associated with real estate tends to be lower than that for equity. The downside to a real estate investment is larger investment size, greater transaction cost, lower liquidity and greater information asymmetry.