Real Estate Industry Growth and Impact on Employment

[br] Growth is compulsory: but its rate must be within limits

[br] Growth is compulsory: but its rate must be within limits

“Being rich is having money; being wealthy is having time”- Margaret Bonnano. Riding piggyback on a healthy per capita income growing at a rate of 13 percent (at current prices in 2006-07), the Indian real estate industry is booming at an exponential rate. This upturn has in fact pulled up many related sectors to the threshold from where they can flourish and has simultaneously given a big push to a number of others. In this study we make an attempt to find out the causes and effects of this growth and at the same time analyse the various employment vistas that the surge has thrown open to the Indians.

Real estate expansion: a closer look
It has been observed since the last few years that end-user buying in the sector has increased from 35 percent to more than 60 percent. There are many obvious reasons for this improvement. First, the advent of the IT sector has made job in the cities a highly common phenomenon. This has induced office workers to migrate to cities. Second, the median age of home buyers has come down to 28 years from 38 years a decade ago. This has significantly improved the number of first time home buyers and ensures buying one’s own house even if the job is highly vulnerable to relocations. The table below depicts the growth of different sectors that have contributed heavily to thereal estate growth in India.

 

Sector	CAGR (Compound Annual Growth Rate)
Organized Retail	49.53
IT and ITES	28
Overall Housing	30
Real Estate	33

 

But bureaucrats are pre-occupied with another concern. The real estate sector in India is highly confined to the urban and semi-urban regions and only a few developers in the country have the capability to operate in niche categories and deliver quality projects. This is a matter of worry as most of the above mentioned sector have not yet made their forays in the backward regions. Howeverreal estate contributes to more than 7 percent of the GDP and every rupee invested in this sector results in the addition of 78 paise to the state’s income. These figures are significant enough to ensure at par development of the needy sections.

Home loan: an excellent indicator
Easy home finance has been the major source of the sprint in home buying. Home loans disbursement were estimated to be Rs 50,600 crores in 2006 as compared to Rs 38923 crores a year earlier. Home loans account for about 50 percent of the total personal loan portfolio. But frequent rises in home loans has marred the enthusiasm and home loan disbursement traveled southwards by 15 to 20 percent in the first quarter of 2007-08. The chart below portrays the admonishment by RBI.

[br] Market leader HDFC and second-largest mortgage lender ICICI Bank saw a plunge in home loan disbursal by 35 percent and 42 percent respectively. There is a general consensus that consumers have deferred home buying with an expectation of future adjustments in interest rates and property prices. This slowdown (rather correction) is brought about by tight liquidity conditions as well as a rise in interest rate. In the last 6 ½ years, RBI has made six amendments in the interest rates to keep credit demand and inflation under check. Presently an interest rate of 9.25-10.5 percent is charged on home loans. However RBI offered relief to first time buyers who wish to borrow up to Rs. 20 lakh by reducing the risk weight on these loans from 75 percent to 50 percent

Measures adopted by government
Government has eased the growth of the real estate sector by making things easy for the bourgeoisie. Its intervention in this regard has been two-folded: 1. Government allowed FDI up to 100 percent in the real estate in the integrated township segment. This helped in stabilising real estate prices and invited reputed builders and property developers to invest in India thus eliminating the shady images of brokers.

2. The introduction of REIT (Real Estate Investment Trusts) some years back has allowed small investors to earn a decent dividend on their investments in this sector. This also assists thereal estate developer to make contingency plans for variegation in manufacturing and marketing chains. Last year SEBI (Securities and Exchange Board of India) unveiled guidelines for mutual funds permitting them toinvest directly in Indian real estate properties.

Impacts on employment sector- an insider’s view
The real estate industry is the second largest employer in the country (agriculture is the largest). According to industry reports, it employs about 15 percent of the educated workforce of India. Most importantly it provides employment opportunities in many related sectors. Many ancillary industries are dependent onreal estate . The organised retail industry will have a total workforce of 2 billion within next five years. Last but not the least, the ITES sector by 2008 will employ 1.5 million people and requires a huge commercial space and infrastructure for the same. The Indianreal estate has huge openings for skilled persons with an in-depth knowledge of business, investment, finance and excellent communication skills. Eligible persons can find many blue-collar jobs of that of a civil engineer, a builder, an architect etc. However, projects of foreign investors must be completed within a deadline thus necessitating the appointment of expert professionals. Numerous opportunities also exist for the unskilled and semi-skilled work force of India. They can find suitable positions in the logistics, transportation and manual works.

[br] Exogenous impediments persist
The real estate market had seen many moves of liberalisations in the last few years. But some governmental regulations pertaining to inhibit unrestrained growth are still at work. The prevalence of tenancy laws, unclear titles,low property taxes etc. must be attended without delay, to make India the most preferred destination. Below we mention the two major legal barriers that the industry faces:

1. Stamp duty must be paid while purchasing or transferring a property. According to National Housing and Habitat Policy, a rate of 2 to 3 percent will serve as the optimum stamp duty. However in most Indian cities it is still more than 5 percent. The Urban Development ministry has rationalised the structure of stamp duty to a uniform 5 percent under its National Urban Renewal Mission(NURM). Once implemented this norm will benefit many middle class people who have purchased plots or houses.

2. Another deterrent in real estate growth is the Urban Land Ceiling and Regulation Act. This Act limits (barres) productive development on a valuable piece of land. It was mainly framed to mitigate land speculation and emphasizes on the distribution of land to urban poors. But much of its purpose has been defeated. It instead soared up land prices by creating unethical land shortage and led to illicit trade of land. The Urban Development Ministry has announced scrapping of the Act to access the central assistance under NURM. The decision is welcome as it will provide adequate land that can be used by housing and infrastructure. But its implementation will take time.