The Indian real estate sector could attract $7-8 billion in investment funds over the next two to three years, as the boom in the Indian real estate sector continues with all segments (residential, commercial and retail) witnessing huge growth in demand, suggests a recent report published by PricewaterhouseCoopers.
The report also notes that $500 million has already come into India in the last six months by way of investments in venture capital funds.
The report notes that new catagories of customers are emerging in the residential sector, as the average age of home-owners goes down with increasing incomes and easy financing options.
"Younger customers and nuclear families are creating fundamentally different customer segments," says the report.
In the retail segment, it says that the likely entry of global business behemoths with new large-format stores is a major factor of dynamism, and signs of a new maturity are already visible.
Mall developers are already cashing in on local requirements, and putting up specialty malls such as the gold souk in Gurgaon and wedding malls in Delhi and Kolkata.
The report notes that there is some likelihood of a shake-out in the mall business in the near future, even as large national and regional players continue to emerge.
It also suggests that professionally managed players that develop competitive strategies (by way of shopper interest focus, for example) will continue to thrive.
The report points out that another area of interest for developers are India's special economic zones, as the SEZ Act provides for a 10-year corporate tax holiday on export earning in addition to a host of other duty exemptions.
The report also points out that apart from real estate developers, IT companies and manufacturer-exporters are also interested in putting up SEZs.
The SEZ developer is also entitled to exemption from payment of dividend distribution tax and long-term capital gains tax on shares.
Also attracting developers are the tax holidays available to housing projects approved before March 2007 and completed within four years from the date of approval.
On the challenges facing the real estate sector, the report says that the government's taxation policy is not in tandem with the thrust of liberalisation. It notes that there are no big tax incentives that have been offered except in the SEZs, which too have a "short shelf life".
It also indicates a need to reform existing tenancy laws in favour of the owner of the property. It notes that the Urban Land Ceiling Act and the Rent Control Act have distorted prices, leading to exceptionally high prices in some parts of urban India. Another problem, it notes, is the lack of clarity in matters of land title in some states.
"This hinders organised dealing and transfer of titles." It also complains that zoning laws make it impossible to acquire large tracts of land in India.