This article has been written by Oishika Banerji of Amity Law School, Kolkata. This article gives detailed insight into the question of whether India’s real estate sector is growing fast or not.
It has been published by Rachit Garg.
An overview of India’s real estate sector
One of the industries with the highest international recognition is real estate. Housing, retail, hospitality, and commercial are its four subsectors. The expansion of the business environment and the demand for office space, as well as for housing in urban and semi-urban areas, are excellent complements to the growth of this sector. In terms of the direct, indirect, and induced effects on all areas of the economy, the construction industry comes in third among the 14 key industries.
The real estate industry has had a significant rebound despite growing building costs and a record increase in the repo rate (225 bps) in 2022. The real estate sector was finally able to take a deep breath this fiscal year after a protracted period of economic stagnation. After two protracted years of lockdowns brought on by the pandemic and the ensuing economic unrest, the industry has seen a thorough recovery this year across Tier I, II, and III cities.
In order to stay competitive, real estate brokers and agents have also modified their methods of operation and developed new working techniques. Financial buyers who have reintegrated themselves into the business have contributed to some of that competitiveness. These new rivals now have the resources to fund numerous new projects. Overcapacity has resulted from the escalating competition mixed with a decrease in demand, although there have been some changes in the nature of competition as a result of the overcapacity and the fierce competition.
Reasons behind the growth of the real estate sector in India
Numbers speak more than words when it comes to the real estate sector. Hence a series of statistics have been provided in relation to the sector in order to determine the growth range in the same. Numbers have been followed by reasons for the growth of the real estate sector in India
In India, the real estate market is anticipated to grow to US$ 1 trillion in size by 2030 from US$ 200 billion in 2021 and to account for 13% of GDP by 2025.
At 5.7 million square feet, the manufacturing industry leased 24% of all office space in 2020. Between Pune, Chennai, and Delhi NCR, SMEs and electronic component makers leased the most, followed by the auto industry in Chennai, Ahmedabad, and Pune. The 3PL, e-commerce, and retail industries accounted for 34%, 26%, and 9%, respectively, of office space leases.
The office sector drew 71% of the total PE investments in real estate in Q4 FY21, followed by retail at 15%, residential, and warehousing at 7% apiece. In one year, the top 7 cities in India’s real estate market saw land deals totaling more than 1,700 acres. US$10.3 billion in foreign investments were made in the commercial real estate sector between 2017 and 2021. Developers anticipated a sharp increase in demand for office space in SEZs that started in February 2022, following the replacement of the current SEZs statute.
The possible grounds that act as catalysts behind the acceleration of the real sector in India have been provided hereunder:
- Demand for real estate stands robust in India:
- By 2025, Savills India projects that the need for data centre real estate would rise by 15 to 18 million square feet.
- Residential property demand has increased as a result of growing urbanisation and rising household income.
- India is one of the top 10 home markets in the world for price appreciation.
- By 2023, organised retail real estate stock is anticipated to grow by 28% to 82 million square feet.
- Availability of attractive opportunities:
- ICRA forecasts that Indian businesses would raise more than Rs. 3.5 trillion (US$ 48 billion) through infrastructure and real estate investment trusts in 2022 as opposed to the US$ 29 billion raised so far.
- Blackstone, a private market investor, has made large investments in the Indian real estate market, totaling Rs. 3.8 lakh crore (US$ 50 billion), and it plans to make more investments totaling Rs. 1.7 lakh crore (US$ 22 billion) by 2030.
- Exports from SEZs increased by 13.6% from Rs. 7.1 lakh crore (US$ 100.3 billion) in FY19 to Rs. 7.96 lakh crore (US$ 113.0 billion) in FY20. To make the market more accessible to small and retail investors, the Securities and Exchange Board of India reduced the minimum application value for Real Estate Investment Trusts from Rs. 50,000 (US$ 685.28) to Rs. 10,000-15,000 (US$ 137.06 – US$ 205.59) in July 2021.
- Between April 2000 and September 2022, FDI in the sector which includes construction development and activities amounted to US$55.18 billion.
- Support of effective policies:
- Institutional investments in Indian real estate totaled $5 billion in 2020, which is 93% more transactions than were reported the year before.
- In Q4 FY21, the real estate sector attracted 19 deals for a total of Rs. 23,946 crore ($3,241 million) in private equity investments.
- Rise in investment in the real estate sector:
- India recorded investments totaling US$2.4 billion in real estate assets in the first half of 2021, an increase of 52% YoY. From April 2000 to September 2022, FDI in the sector, which includes construction development and activities, amounted to US$55.18 billion.
- With increased demand for both business and residential spaces, the Indian real estate sector has recently experienced rapid growth. Increasing investor interest in securing favourable prices in the midst of the pandemic had likely propelled institutional investments in the Indian real estate sector to reach Rs. 36,500 crore (US$ 5 billion) in 2021. In the first half of 2021, private equity investments in Indian real estate reached US$ 2.9 billion, which is a 2x increase from the first half of 2020, according to a recent research by Colliers India.
- Some of the major investments made in the real estate sector are provided hereunder:
- Private equity investment inflows into India’s real estate market between January and July 2022 totaled US$3.27 billion.
- A healthy recovery followed the strict lockdown imposed in the second quarter as a result of the spread of COVID-19 across the nation was indicated by the home sales volume across seven major cities in India, which increased 113% YoY to reach 62,800 units in the third quarter of 2021 from 29,520 units in the same period last year.
- Institutional real estate investment in India increased by 7% YoY in the third quarter of 2021. Compared to the same period last year, investment totaled US$ 2,977 million in the first nine months of 2021, up from US$ 1,534 million.
- The 16-storey commercial skyscraper in Navi Mumbai owned by Aurum Ventures was purchased by Ascendas India in November 2021 for Rs. 353 crore (US$ 47 million), making it the largest sale of a solo commercial tower by a global institutional investor in recent years.
Role of Central Government in pushing the real estate sector
The Central Government’s massive push for building infrastructure, including the dedicated rail freight corridor, world-class multiple-lane express highways crisscrossing the nation, airports, railways, and even bus terminals, is considered to be one of the main factors influencing positive sentiments in the real estate sector. Numerous actions have been taken to promote sector growth by the governments of the individual states and India.
A few significant initiatives by the Central Government in recent years that have catalyzed the growth of the industry include the revival of stalled projects through the SWAMIH fund, the creation of an affordable housing fund with an initial corpus of about Rs 10,000 crore to fund housing finance companies (HFCs) in the priority sector, real estate debt restructuring, and moratorium benefits during the pandemic period.
Further, tax deductions for housing loan interest up to Rs. 1.5 lakh ($2069.89) and a tax holiday for projects that build affordable housing have been extended through the end of the fiscal year 2021–2022, respectively, under the Union Budget 2021–22. For the primary purchase or sale of residential units of value (up to Rs. 2 crore (US$ 271,450.60) from November 12, 2020 to June 30, 2021), there were income tax relief measures for real estate developers and homebuyers included in the Atmanirbhar Bharat 3.0 package announced by Finance Minister Mrs. Nirmala Sitharaman in November 2020.
The establishment of a Rs. 25,000 crore (US$ 3.58 billion) alternative investment fund has been authorised by the Union Cabinet in order to revive approximately 1,600 housing projects that have stagnated in the country’s biggest cities (AIF).
Following the COVID-19 pandemic, the hybridization of the workplace has led to a trained workforce moving to satellite cities, which has increased the demand for housing in these areas. The long-term appeal of these places is increased by new industrial and transportation corridors, low-cost labour, simpler supply chain and logistics management, and lower costs of living and conducting business.
Contribution by the e-commerce sector and the IT industry towards real estate
One of the nations with the fastest-growing e-commerce sectors is India. Nearly every industry, including technology and fashion firms, has an online presence. However, it is also clear from all of this that the real estate sector is not far behind. E-commerce companies need massive infrastructure including warehouses and distribution centres, adding to the real estate boom in India.
According to reports, India is second in the world for online business. More than 20 million Indians, according to sources, search for homes and properties online. Over 50% of real estate transactions take place on online platforms.
When it comes to online commerce, real estate web portals are also building a name for themselves. These sites interact with clients and assist them in finding the best offers. These websites primarily serve clients looking for details such as clubhouses, amenities, swimming pools, and other things.
When it comes to e-commerce, there are no geographical restrictions, therefore, online real estate websites can serve not only the major cities but also the smallest towns and cities.
Real estate sector and associated customer sentiments
- Rise in NRI buying: The declining value of the rupee and the prospects of the emerging Indian economy encourage non-resident Indians (NRIs) to make investments in their domicile nation. Additionally, fresh introductions of high-quality housing items in significant Indian cities have drawn these customers. The interest of NRI buyers has greatly benefited from the interconnected global environment and expanding local market infrastructure.
- Growth among millennials: One of the distinctive features of today’s demand is that even millennials are increasingly thinking about purchasing a home. The millennial generation is also referred to as the “renting generation” since they initially chose to use their money to pay for an asset’s use rather than its ownership.
- Boon of the pandemic: The pandemic fueled expansion in the Indian real estate industry. The idea of a home as one of life’s most basic necessities was transformed in this period. People felt the need for a spacious home that can accommodate their needs for work and other requirements. Large dwellings became more popular as a consequence of such thought. Therefore, since the pandemic, there has been a rise in house demand, and consumer confidence remains high.
Systemization and unification of real estate sector : the way forward
- Real estate is currently moving away from fragmentation, and important stakeholders are making deliberate efforts to systematise and unify the industry. This will make sure that well-known, listed developers build up their equity and solidify their market position.
- The products that are introduced to the market for consumers will be of the highest calibre and will be of world-class due to organised developers gaining a larger market share. Both consumers and developers will gain in the long run from this movement’s favourable developments.
- The shift from disorganised to organised business structures will be another significant trend in the real estate sector.
- Commercial real estate funds are becoming more visible on the market as small-time investors increasingly find appeal in the prospect of receiving a steady passive income from safe real estate assets.
- With the ambitious Pradhan Mantri Awas Yojana (PMAY) scheme of the Union Ministry of Housing and Metropolitan Affairs, the Central Government intended to build 20 million affordable houses in urban areas across the country by 2022, post which, the residential sector is likely to increase dramatically. The need for commercial and retail office space will rise as more homes are expected to be built in urban areas.
- An estimated 10 million housing units are currently needed in urban areas. By 2030, the country would need an additional 25 million affordable dwelling units to accommodate the increase in the urban population.
- The amount of FDI in Indian real estate is increasing, which promotes greater openness. Developers have updated their accounting and management systems to meet due diligence criteria in order to seek investment. Indian real estate is anticipated to draw a sizable amount of FDI over the next two years, with a capital influx of $8 billion by FY22.
- Looking ahead to 2023, the Indian economy shows what can only be interpreted as encouraging indicators, including a predicted increase in job creation, a rebound from the current stock market fall, and an 8–9% overall growth. All of these would ultimately lead to a rise in housing demand as more individuals entered the housing market, which is crucial for the health of the real estate industry.
In light of the above facts and statistics, it stands clear that the real estate sector of India is indeed growing fast.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.