Demand for real estate in India has been rise for a number of years.

There are a number of factors which affect the demand for real estate. In addition to demographic factors, other factors like income, price of housing, cost of borrowing, availability of credit, consumer preferences, investor preferences, price of substitutes and price of complements, location of the property, urbanization etc also affect the demand for real estate. Based on secondary research and empirical evidence, the following parameters are considered relevant in deriving the demand function: D= f {I, P, Cb, Cr, Cp, Ip, Ps} Where, D Demand for real estate I Income of consumers P Price of housing Cb Cost of borrowing Cr Availability of credit Cp Consumers preferences Ip Investors preferences Ps Price of substitutes and compliments Rising Disposable Income Income has been found to be positively related to housing demand. An increase in income leads to an increase in demand for housing. For durable consumer products and purchases, permanent income has been found to be significant in influencing the consumers housing decision. Income elasticity of demand measures the sensitivity of the demand for a good to change in income. Income elasticity of housing demand has been found to vary across areas based on a number of factors. As a result, the income elasticity varies from location to location. The per-capita disposable income in India has grown manifold in the past few decades. Robust economic growth over the past few years have created many more opportunities to the young population in India. This has increased the affordability of homes in spite of higher property prices and has further created more discerning buyers.

Per Capita Income (in Rupees)

40000 35000 30000 25000 20000 15000 10000 5000 0 FY2006-07 FY2007-08 FY2008-09 FY2009-10 FY2010-11 Per Capita Income

Price of housing: Housing supply is produced using land, labor, and various inputs such as electricity and building materials. The price of new supply is determined by the cost of these inputs, the price of the existing stock of houses, and the technology of production. For a typical single family dwelling in suburban North America, approximate percentage costs can be broken down as: acquisition costs 10%, site improvement costs 11%, labor costs 26%, materials costs 31%, finance costs 3%, administrative costs 15%, and marketing costs 4%. Multi-unit residential dwellings typically break down as: acquisition costs 7%, site improvement costs 8%, labor costs 27%, materials costs 33%, finance costs 4%, administrative costs 17%, and marketing costs 5%. The long-run price elasticity of supply is quite high. George Fallis estimates it as 8.2 (Fallis, G. 1985), but in the short run supply tends to be very price inelastic. Cost of borrowing Cost of borrowing decides the demand of real estate at major part. If the interest rate of borrowing is increased then the demand for real estate decreases. The consumer prefers saving that money for future investment rather than real estate at high price. This behaviour has shown catastrophic effect in US during subprime mortgage crisis. The low interest rate made consumers invest more money into real estate which led to high price rising and ultimately to increase in interest rate by federal government to curb the price hikes. This increased interest rate reduced the demand for real state with the supply increased at previous rate. Availability of credit Over the past decade, India has emerged as a leader in the global economy. It is a magnet for foreign direct investment (FDI), and has displaced Mexico as the third most preferred country for foreign investment. FDI in India is expected to increase to US$15 billion this year, triple the 2004 figure. Many foreign companies are starting or expanding operations in India. One-fifth of all Fortune 500 companies including Eli Lilly, General Electric, and Hewlett Packard have set up research and development facilities in India. With a view to catalysing investment in townships, housing, built-up infrastructure and construction development projects as an instrument to generate economic activity, create new employment opportunities and add to the available housing stock and built-up infrastructure, the Government of India has decided to allow FDI up to 100% under the automatic route in townships, housing, built-up infrastructure and construction development projects. Consumers preferences Consumers preference is one of the strategic variables of an economic system. It influences and is, in turn, influenced by the process of production, exchange, distribution and consumption. It also plays an important role in affecting and, in turn, being affected by such important economic functions as providing incentive, coordinating and controlling economic activities. Investors preferences Apart from the huge demand for real estate, India has also witnessed an upsurge in the construction activity over the past few years. Over the past decade, India has emerged as a leader in the global economy. It is a magnet for foreign direct investment (FDI), and has displaced Mexico as the third most preferred country for foreign investment. FDI in India is expected to increase to US$15 billion this year, triple the 2004 figure. Many foreign companies are starting or expanding operations in India. One-fifth of all Fortune 500 companies including Eli Lilly, General Electric, and Hewlett Packard have set up research and development facilities in India.

Price of substitutes and compliments The Real Estate industry has significant linkages with several other sectors of the economy and over 250 associated industries. A unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as five times. If the economy grows at the rate of 10% the housing sector has the capacity to grow at 14% and generate 3.2 million new jobs over a decade.The surge in foreign investment, more joint ventures between Indian and foreign companies, and the growth of Indias domestic industries have created more employment opportunities for Indias young, highly educated, professional workforce and fuelled the growth of the countrys middle class.

Other Factors
Rising Urbanisation With a population that is considerable younger than the average population around the world, many Indians are migrating to the cities in search of better opportunities. This has led to an increase in the urban population in India. India is getting urbanised at a faster rate than the rest of the world and by 2030 more than 40.7 per cent of the countrys population is expected to be living in urban areas. Indias Mega-Cities of Mumbai and Delhi are expected to become the worlds 2nd and 3rd largest cities by 2015. This increase in urban population has led to a corresponding increase in the demand for residential space.
China India USA Brazil Russia Japan UK 200,000 400,000 600,000 800,000 1,000,000 2030 2010