Tuesday, 31 March 2015


Over the past few decades the entire globe has been marked with the growth of real estate and such related industry. This has resulted from a rapid urbanization process and the associated changes in psychology and demographic profiles. Such a growth has definitely induced a stable economic growth, although larger masses continue to suffer from affordability problems and space constraints.

The new millennium has seen the world on the verge of economic development. In addition to the production and manufacturing industries, there has also been a large boom in the services sector which includes trade, transportation, communications, real estate and finance, public and private sector services. As per the survey of the International board of land and housing, Real Estate in India has been on the rise and has contributed to almost 5% of the national GDP. The steady increase in the production of the said sector definitely reflects increased market-determined processes, such as the spread of rural banking, bank loan and interest rates, and efficient land governance to provide for a better utilization of land and infrastructure.

The global real estate consulting group Knight Frank has ranked India 5th in the list of 30 emerging retail markets and has predicted an impressive 20% growth rate for the organized retail segment by 2010. Investment in retail real estate segment yields 13- 16 percent return, which is quite high when compared with the returns from the residential and office segments.This is creating an interest in the foreign players for direct investment. In order to satisfy the demand of the country's immense housing shortage, there is a vast opportunity for developing large scale commercial and residential townships across the country.This would definitely encourage public private partnership and India shall be turned into a major destination for investment of worldwide capital. Keeping this in view, the government has started to think flexibly in terms of housing rules, laws and guidelines and other investment issues. As per the norms of the government in India, 100% Foreign Direct Investment would be allowed in all forms of housing,commercial premises, hotels, resort etc. This move on investment is expected to have a multiplier effect on various avenues like employment creation. Building techniques and technology and ancillary industries of construction are emphasized.

Above all, the private investors in this sector have also turned out to be professional and have started to recruit from a strategic level. The standardization of industries of construction has also been achieved through efficient investment capitalization. The latest market trend reflected in this industry is on buying retail property which has, in turn, caused a significant up liftment of real estate price. Inspite of all these factors real estate lending is considered a risky business, which has ample evidences from many countries of heavy bank losses. The various types of risks associated with this industry include credit risk, collateral risk, profitability risk and price risk. Despite this, various countries are encouraging Foreign Direct Investment to be floated in this sector. This current move on investment is expected to have a multiplier effect on employment creation, building techniques and technology, in addition to promoting the ancillary industries of construction.

The bank's policies and procedures should include an appraisal program that includes professional judgments of the present and/or future value of the real property. The issues that are taken into consideration involve cost, market data, capitalization of income approach and discounted cash flow.