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Seizing opportunities within India’s real estate sector presents an enticing prospect for those aiming to leverage the nation’s economic growth, urbanisation trends, and evolving consumer preferences. India’s economy, among the fastest-growing in the world, boasts a real estate sector valued at $477 bn, contributing approximately 7.3% to the nation’s GDP.
This sector interlinks with nearly 250 ancillary industries and stands as a substantial employment generator, providing 18% of the country’s total employment, trailing only the agricultural sector.
Moreover, India’s real estate domain also significantly bolsters state governments’ revenues. From April 2022 to March 2023, stamp duties, registration fees, and land revenue made up around Rs 2 tn ($24.19 bn), equivalent to 5.4% of the collective revenue earned by Indian states and union territories during the same period.
Concurrently, the industry is undergoing a swift expansion as well. During the fiscal year ended March 2023, India’s residential property market achieved an unprecedented milestone as the value of home sales surged to a record-breaking Rs. 3.47 lakh crore ($42 bn), signifying a substantial 48% year-on-year surge, as reported by IBEF.
Additionally, IBEF emphasised that the sales volume exhibited an upward trajectory, registering a significant 36% rise, translating to 379,095 units sold. Notably, India ranks within the top 10 countries globally in terms of housing markets experiencing appreciable price growth.
“Apart from residential, the increasing need for contemporary office space, the need for hospitality and retail real estate development to cater to the growing consumption needs of the population are some of the other key growth inducing factors leading to real estate expansion in India,” said Knight Frank.
Government policies driving growth in India’s real estate sector
As India’s real estate sector undergoes rapid expansion, a range of measures implemented by the government has positively impacted the industry. Notably transformative among these policies is the Pradhan Mantri Awas Yojana (PMAY), inaugurated in 2015.
This ambitious program, tailored to create affordable housing, extends financial incentives and subsidies to urban and rural beneficiaries, facilitating homeownership for low and middle-income households.
In parallel, a monumental policy transformation arrived with the introduction of the Real Estate (Regulation and Development) Act (RERA) in 2016, which instilled a sense of order in the sector. By boosting investor confidence and enhancing builder accountability, RERA’s framework has streamlined the real estate landscape.
Also, measures such as the establishment of the Affordable Housing Infrastructure Fund (AIF) in 2018 and the implementation of the Model Tenancy Act in 2019 have collectively contributed to reshaping India’s real estate environment.
Challenges faced by India’s real estate
It has not always been smooth sailing for the country’s real estate businesses. The nationwide lockdowns triggered by the onset of Covid-19 in 2020 adversely affected the industry. Construction activities abruptly ceased, compounded by the reverse migration of labourers to their respective home states, exacerbating the challenges of sustaining operations.
Presently, one of the biggest challenges that Indian developers face is the rising cost of construction materials. The builder has no option but to pass it on to the homebuyers, inflated property prices. High prices of residential properties, especially in tier-II cities, deter its sales. As a result, it becomes extremely difficult for small or medium developers to sustain their operations.
The way ahead
Things have improved since, and 2023 looks to be a promising year for India’s real estate players. “During 2023, there is likely to be greater activity from developers towards improving building efficiency, design adequacy and building sustainability criteria. These upgradations will provide long-term benefits and help assets remain competitive in the market,” said Colliers.
A promising long-term outlook beckons for the sector as well. According to the ‘India Real Estate: Vision 2047’ report by Knight Frank, the sector is forecasted to expand to $5.8 tn by 2047, elevating its contribution to the GDP from 7.3% to 15.5%.
The report also underlines that private equity investments in Indian real estate, which have consistently grown over two decades, are projected to escalate from $5.6 bn in 2023 to an impressive $54.3 bn by 2047, with an annual growth of 9.5%.
“Overall, the real estate sector has shown increased immunity to uncertainty and is on track to reach its pre-pandemic levels. Real estate players, who have aligned their operations with emerging trends and changing home buyers’ preferences, are likely to emerge as winners,” said Neeraj Bansal, Partner, Co-Lead and COO-India Global at KPMG.
