Define Real Estate Industry

Introduction

Indian economy is growing rapidly in recent years. It will be one of the fastest growing economies in the next decade. Real estate industry plays a vital role in the India’s economic growth. The contribution of Real estate industry in India is about 5% to Gross Domestic Product (GDP).

The growth rate of demand on real estate industry in recent years is abruptly amplified in Tier 1 metropolitan cities. The real estate industry has wider scope in the sectors like education, healthcare and tourism. In the last decade, the investment of FDI was more than US $ 9billion in the real estate. In 2010, over 11 per cent of total FDI in India was in the real estate sector. There have been 110 deals in this sector during the period 2001 to the first half of 2011. Due to the economic growth, the rural population migrates towards urban for employment opportunity. Urban population has started increasing. Due to this urbanization, the demand for residential real estate is significantly increased.

Real estate investment is a long term investment and also it is a durable asset. The life of the building is much longer than any other asset. The realization of land and building takes much longer time because it involves complicated legal procedures and high transaction cost.

Real estate assets are classified based on use into the following:-

Purchaser occupied property

Income producing property

Property developed for sale

Purchaser occupied property: The person who purchases the property for his own use either for his residence or for his business premises is called purchaser occupied property.

Income producing property: The property purchased for the purposes of leasing or renting is called income generating property.

Property developed for sale: If the purpose of purchasing the property is to sell to others for profit, it is called property developed for sale.

Factors that make Real Estate Attractive

The real estate industry is attractive because:

The demand of this industry is based on need

It generates two types of income such as capital gain and rental income.

It paves the way for regular income through lease/rent.

The revolution in the real estate industry is due to arrival of MNCs especially in the IT sector.

Therefore, the housing sector in India has witnessed strong development in the last few years.

Benefits of Real Estate Investment

There is tax exemption subject to certain conditions on profit (capital gain) arising from sale of land/buildings. This encourages investors to invest in real estate sector.

Housing Loans are available at the lower rate of interest. Hence, middle-class people can easily purchase own house.

Investment in commercial premises generates more rental income besides incredible increase in the value of the investment in premises.

Yield of Investment in real estate is exorbitant whereas stock market investment is highly volatile. Hence, investors are more interested to invest in real estate.