Globally, the real estate sector is one of the driving forces in a country’s economy. Not just housing and commercial construction but sub industries such as retail and hospitality play key roles in the economic growth. The story is same in India, with the Indian real estate industry ranked 3rd in terms of direct, indirect and induced influence on the all sectors of the economy. So what are the factors that driving and influencing the Indian Realty?
The real estate sector alone is expected to reach a market size of USD 1 trillion by 2030. In fact, estimates state that by 2025 the real estate sector will contribute almost 13% of India’s GDP. Rising urbanization, increasing disposable incomes among a large population (namely the middle and higher middle class) as well as economic development aimed at the masses is widely influencing the increasing demand for residential as well as commercial real estate. Significant growth in sub industries such as retail, hospitality, commercial & business driven real estate are fuelling the demand in the realty sector. In addition, wide ranging expansion of the IT & ITES, e-commerce, education, logistics and consulting sectors has meant that the demand for office space is set to go very high. Commercial office stock in India was expected to cross 600 million square feet by 2018 end while office space leasing in the top eight cities is expected to cross 100 million square feet during 2018-20.
The government of India is firmly focused on its objective of making India a USD 5 Trillion economy in the next five years. A major push in that direction is expected to come from the realty sector. To encourage infrastructure and development projects that will aid the real estate sector and drive demand, the Government of India has started several initiatives such as
- The Smart City Project where there is a plan to build 100 smart cities.
- The Pradhan Mantri Awas Yojana for affordable housing under which the government has sanctioned over 81 Lakh houses under the PMAY-Urban scheme and an additional 1.95 crore houses have been proposed to be provided under the PMAY-Rural scheme.
- The National Urban Housing Fund has been approved in February 2018 with an outlay of Rs 60000 crores.
- Up to 100% Foreign Direct Investments (FDI) allowed for townships and settlements development projects.
Investments & Development
The Indian real estate sector has witnessed high growth due to the spike in demand for both residential as well as commercial projects. With India doing better on the ease of doing business index as well as transparency in dealings, private and institutional investments have increased. During the decade 2009-2018, the Indian real estate sector attracted investments worth USD 30 Billion, with USD 5.5 billion coming in alone in 2018. According to official data, the construction sector in India has received Foreign Direct Investment (FDI) equity inflows of around USD 25 billion in the period April 2000-March 2019. Private Equity and Venture Capital investments in the sector have almost reached USD 1.47 billion between Jan-Mar 2019.
Also, with new housing launches across top seven cities in India expected to increase 32 per cent, a lot of big ticket, global as well as local, real estate developers are increasing their presence in the Indian realty sector such as
- Embassy Office Parks attempting to raise around Rs 52 billion through India’s first Real Estate Investment Trust (REIT) listing (the Securities and Exchange Board of India (SEBI) has given its approval to this platform that will allow all kinds of investors to invest in the Indian Real Estate market).
- Blackstone Group acquiring One Indiabulls in Chennai for around Rs 900 crore.
- DLF buying 11.76 acres of land for Rs 15 billion for its expansion projects in Gurugram.
With the Indian government set on boosting the real estate sector, global investments and the ever increasing demand, the realty sector looks set for a vibrant period ahead. With SEBI allowing the REIT platform into the Indian realty sector, it is estimated that investments worth Rs 1.25 trillion could flow in over the years. A lot of NRI investments are expected to also flow in with Bengaluru the favored destination followed by Ahmedabad, Pune, Chennai, Goa, Delhi and Dehradun.
A robustly growing realty sector will also mean challenges to the Indian real estate developers. A focus on professionally run businesses, responding to an aware and globally exposed consumer, managing multiple projects and delivering quality jobs, ensuring transparent and best business practices that meet due diligence standards will have to be implemented for the companies to be a part of this great Indian Real Estate success story.
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