Cash Cows Heading for Greener Pastures.

Assocham said 2007 saw a growth of 30-35% and 40-45 % in retail and real estate sectors respectively, and predicted that this boom would continue in the coming year too. The Chamber emphasizes that India has already emerged as the world's fifth largest investment destination in retail because of its market potential, thanks to its huge population base. The number of retail outlets, most of which are in the showroom category, in India is estimated at 15 million as of now, and the number is expected to multiply further.

Out of the 15 million retail outlets, nearly 5.5 million sell food and retail products. The size of rural retail, which would still be in unorganized sector even in 2010, would touch about US$45bn. The projection for 2015 is US$65bn. In 2007, rural retail size has been estimated at US$30bn. By 2008, this is expected to be around US$36bn. As per Assocham's estimates, in 2008 about 150 new malls are likely to be added, and this would capture a large share of the organized retail market.

And the real estate sector, the market size is currently estimated at US$15bn. The sector has been growing at about 35-38% in the last few years ensuing in the inflow of huge investments. From 2008 onwards, the real estate sector is likely to grow at about 40-45%. Even though, there will be expected slow down of growth in the metros and large cities by 2010.

The increased flow of funds has led to various policy measures aimed at checking speculative money. About 94% of capital investment being made in the sector is in tier-I cities of Mumbai, Delhi and Bangalore. With the property in metros becoming costlier and money getting dearer, developers are moving towards tier-II and tier-III cities. US$10 billion is expected to flow into the domestic reality sector by end of 2008. The FDI in the retail sector accounts for 22% of total FDI inflow into India. This is because in India the return on real estate investments are around 22% against 5-6% that of the world's developed market.

The realty sector is likely to touch US$90 bn by 2015. The demand for both commercial and residential property is outstripping supply. Home loans formed 11% of total outstanding credit of scheduled commercial banks in March 2005, up from just 2.4% in March 1990. The sales value of housing construction has witnessed an extraordinary leap from Rs176.1mn in 1991 to Rs41.82 bn in 2006. Housing loans grew at an average rate of 47.68% during 2000-01 to 2004-05, subsequently slowing down to an average of 27.85% in 2005-06 and 2006-07.

But with so many impediments which loom large in India, this boom might not filter through one and all, as it has happened in Tier I cities. Unorganized market and rule of speculators, will determine how this market goes. Investors getting a early stake and manipulating the prices has happened in past. Artificial scarcity and lack of transparency from developers adds to the woes of users burdened by high interests rates and rising price index. As is the case with Tier-I cities, Tier-II & III cities would be no different from the existing examples of Real Estate Investments of Luck.