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Indian Real Estate Profits Likely To Fall Monday, March 12, 2007
Everything that goes up comes down too. It seems the profit margins on the Indian real estate, which was quite high for the property developers in the last two years, are likely to take a beating due to abundance of commercial and residential supply in 2007, reports a business news channel. The channel reported that the real estate market may not remain as profitable for private equity investors or for the developers with the imposition of higher dividend distribution tax and the 12.36 percent service tax on commercial rents by P. Chidambaram. Those are not the only factors, as the increasing land prices too will cut down the profits margins. Stating the reason for the fall in profits in the Indian real estate sector, Subodh Runwal, managing director, Runwal Group, feels, there is too much liquidity foreign funds for the limited land supply so it is natural that the prices of land will go up and as a result of soaring land prices returns or margins for developers, investors and private equity players will fall drastically. The other factors that could affect investor returns will be the raising of construction costs for developers and higher interest rates for home loans. According to market experts, private equity investors are unlikely to flee the Indian real estate but there are possibilities that they will give a second thought about investing in India. Indian real estate could still see nearly US$ 17 billion entering the real estate market barring some. Despite this stunning prediction, the Indian real estate market still seems unabated in its buying spree. Realty consultants Cushman and Wakefield projects will add 16 million sq feet of developed office space in Bangalore, 12 million sq feet in Chennai, Delhi and the NCR region will see an addition of 10.5 million square feet while Mumbai will seethe addition of 9.1 million square feet.Of these office spaces, around 40 percent of the office spaces are estimated to have been already pre leased to tenants.
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