December , 2023
India invests in residential properties
23:06 pm

Tushar K. Mahanti

“Owning a home is a keystone of wealth --- both financial affluence and emotional security’ said Suze Oman, an American financial advisor and author. Suze seems to have portrayed the Indian sentiments to perfection. Owning a home for an average Indian is as much a step for wealth building as the fulfilment of emotional security.

This is reflected in the sharp rise in residential housing sales in India over the years. The size of the country's real estate industry is expected to reach $1 trillion by 2030 from $200 billion in 2021, according to a joint report prepared by Naredco and EY.

Echoing the Naredco and EY projection, Statista, a German online platform specialising in data gathering and visualisation too has predicted the Indian real estate market to touch $ 1 trillion-mark by 2020. 

The real estate sector is one of the fastest moving sectors of the Indian economy – it is the second-highest employment generator in the country after agriculture. The sector is deeply interlinked to a large number of allied industries including steel, cement and bricks. The sector is estimated to account for about 6-7% of the economy.

The entry of big corporate houses and consolidation have led to the expansion of the Indian property market with the value of real estate under construction jumping over two-fold to $ 243 billion in the last one decade, according to a report by FICCI and Anarock. The expansion of the property market was largely driven by the residential segment. India’s real estate market has grown tremendously in the past decade. Robust occupier interest, the rise of organised real estate developers, and the entry of institutional capital have acted as catalysts for the growth. 

This can be attributed largely to the rising demand for residential properties due to rapid urbanization, increasing disposable incomes of individuals and availability of home loans at lower interest rates. Moreover, the increasing need for contemporary office spaces and the emerging trend of urban and semi-urban lodging are acting as other significant growth-inducing factors. The expanding e-commerce sector in the country is catalyzing the demand for warehousing facilities, which is providing a positive thrust to the real estate market.

In addition, various initiatives undertaken by the government such as investments in smart city projects and tax exemption for interest on housing loans are anticipated to create lucrative business opportunities for industry investors in the country.

The three major reforms – the introduction of GST, the launch of RERA and the grant of infrastructure status to affordable housing properties – have had a massive and positive impact on the industry. The government’s vision of ‘housing for all’ and the grant of infrastructure status to compact, affordable residential homes saw an increase in the demand for low-cost homes.

After some initial disruptions in growth dynamics following the structural reforms, the enhanced liquidity in the banking system, the government initiatives and the restoration of buyer confidence have slowly improving the performance of the real estate sector.

Global market scenario

Like in India, the global real estate market too is experiencing robust growth driven by rapid urbanisation leading to the growing demand for residential and commercial properties. As more people migrate to cities in search of better opportunities it creates a positive outlook for market expansion. Additionally, low interest rates have made borrowing more affordable, enticing investors and homebuyers, thereby bolstering the market growth. Moreover, the Covid-19 pandemic has reshaped the real estate landscape, with remote work driving a surge in demand for larger homes in suburban and rural areas, as well as a growing interest in vacation properties.

According to IMARC, a leading market research company, the value of the global real estate market was $ 7,239 billion in 2023. The size of the market is projected to grow by 1.9% annually compounded during 2023-2032 to reach $ 8,654 billion by 2032. The Asia Pacific region is the key player in global growth with India, China and Indonesia leading the drive following rapid urbanisation.

North America too is expected to show steady growth in real estate market driven by increasing infrastructure spending by the government. Leaving behind the agony of coronavirus pandemic days the Europe real estate market is projected to grow by 4.2% CAGR during 2023–2028.

Budget 2023-24 and the real estate sector

Policies apart, the government’s direct involvement through budgetary allocations has played a key role in the growth of the sector. Budget 2023-24 for example, emphasised the development and urban planning in Tier 2 and 3 cities with a focus on sustainable and planned growth boosting the housing sector in these cities. To assist the public agencies in developing infrastructure in Tier 2 and 3 cities a budget of `10,000 crore was proposed. Additionally, the increased allocation of `16,000 crore to build “sustainable cities of tomorrow” is expected to have a long-term positive impact on the real estate potential of these cities.

As promised by the government on various occasions, the allocation for the Pradhan Mantri Awas Yojana increased by a huge 66% to `79,000 crore in the last budget. This is expected to improve market sentiments for both developers and consumers, particularly in smaller cities and towns. The increased demand for raw materials may also lead to a price balance, providing further momentum to the sector.

The finance minister has proposed private sector investments in various infrastructure projects like the development of airports, waterways, railways, and power generation which will in turn impact the real estate sector in many ways. The long-term impact of these projects would lead to the development of urban cities, with greater need for residential and corporate spaces.

Rise of domestic capital in Indian real estate

While the easy home loans have facilitated individuals to own residential properties, various regulatory changes have likewise allowed property developers access to institutional finances. The regulatory changes brought about by the government in the last few years have resulted in increasing participation from domestic financial institutions in the real estate sector. Introduction of guidelines for Real Estate Investment Trusts (2014), the Housing for All Mission (2015), the Real Estate Regulation and Development Act (2016), the Benami Transactions (Prohibition) Amended Act (2016), the Goods and Services Tax (GST) and relaxation in FDI norms, gave a boost to institutional investments from 2015 onwards.

According to a JLL report; ‘The Rise of Domestic Capital in Indian Real Estate’ the Indian real estate sector is set for growth as it has a potential access to approximately $ 41 billion of untapped domestic institutional capital. Since 2010, the Indian real estate sector has attracted institutional investments of approximately $ 57 billion with about $ 46 billion of these investments occurring between 2015 and H1 2023, accounting for 81% of the investments since 2010.

In addition, due to the regulatory change in FDI, the real estate sector dealing with township building, housing and built-up infrastructure attracted more than $ 26 billion foreign direct investment between 2000 and 2023.

Real estate sector growth

India’s real estate market is one of the most dynamic and fastest-growing in the world. While it has witnessed rapid growth in recent years, the unforeseen problems posed by the pandemic during the period 2020-22 brought about radical change in the sector, and ushered in several challenges.

However, it has made a quick recovery in comparison to other real estate markets in the world, with demand gaining momentum. The Indian real estate sector is expected to grow to $5.8 trillion by 2047 contributing 15.5% to the GDP from an existing 7.3% now, a 2023 joint report by Knight Frank and National Real Estate Development Council (Naredeco) said.

According to Knight Frank India, in the next 25 years, there will be an estimated 230 million units of housing requirement in India. The demand for housing is expected to remain concentrated in affordable housing and will gradually shift towards mid segment and luxury housing. The share of lower income households will reduce from existing 43% currently to 9% in 2047.

The office stock has grown significantly from 278 million sq ft in 2008 to 898 million sq ft cumulatively across the leading eight cities in India in 2022, it added.

Record rise in residential properties

The residential housing sales during the first nine months of 2023 in the seven major cities, namely, Bengaluru, Chennai, the National Capital Region, Hyderabad, Kolkata, Mumbai and Pune at 1,96,220 units nearly touched the full year’s sales of 2022. The residential sales are set to surpass 215,000 units by the end of the year, a new record, according to JLL India’s Residential Market Update – Q3 2023.

The residential market in Q3 recorded the highest quarterly sales since 2008 as the high-end segment contributed most of the demand. Quarterly sales at 69,600 units climbed 7.9% in Q3 compared to the same period a year ago.

The demand for residential apartments will be backed by a robust supply pipeline as developers announce new launches and enter newer markets including peripheral micro markets where infrastructure augmentation is in process or planned, it said.

Strategic land acquisition in prime locations as well as in growth corridors is expected to strengthen supply. The residential market is expected to remain buoyant and achieve the next wave of growth and expansion with good response from buyers in the mid as well as premium segments, it said. The seven cities are Bengaluru, Chennai, the National Capital Region, Hyderabad, Kolkata, Mumbai and Pune.

The strength of the residential market is evident from the robust sales volume recorded in the first half of 2023, with more than 62,000 units sold in each of the two quarters. Notably, Q2 2023 saw sales of over 64,500 units, representing a significant 4.0% quarter-on-quarter growth. It is interesting to observe that residential sales have consistently reached new peaks in each successive quarter over the past year. 

The larger markets of Mumbai and Bengaluru led the half-yearly sales, contributing 21% each of the total. Pune too made substantial strides accounting for 20%. In fact, all cities except Kolkata saw sales rise in H1 2023 compared to the year-ago period.

The government's strong push, coupled with the central bank’s decision to pause the policy rate along with moderate inflation, have played a pivotal role in revitalizing the residential market. The demand for homes is projected to remain growth-oriented in the medium term as well. In H1 2023, the Indian residential sector witnessed remarkable progress, achieving historical sales of approximately 126,500 units.

Encouraged by a strong consumer demand, developers have launched new projects across the top seven cities of India. Most of the new launches were witnessed in Mumbai (24%), Pune (22%), and Hyderabad (19%). Residential launches of more than 151,000 units were recorded in H1 2023, a rise of 24% y-o-y.  The launches also increased on a quarterly basis with over 76,000 units launched in Q2 2023. 

Interestingly, the majority of the new launches in H1 2023 were in the premium segment (apartments in the price bracket of above Rs 1.50 crore) with a share of 29%. Around 24% of the launches were in the price bracket between Rs 1 crore- 1.5 crore, the JLL report claimed.

Uptrend in office space leasing

Backed by a higher GDP growth and improvement in economic activities the commercial real estate market in India is expected to reach new heights in 2023.

Gross leasing of office space in the third quarter of 2023 rose to 16.03 million sq ft across the top seven cities, up by 26.4% q-o-q, driven by strong occupier traction in the tech cities of Bengaluru and Hyderabad again. The office markets’ performance is a testament to the strong fundamentals of demand and the complete absence of any lasting effects of the global headwinds, except delayed decision-making.

The uptrend was evident from the first quarter itself. The aggregate office space leasing had gone up to 25.31 million sq feet in the first half of 2023. Delhi NCR with 28.1% share led the pack followed by Bangaluru with 22.8% share. 

Despite the global uncertainty India has succeeded in sustaining economic growth and maintaining job stability, resulting in phenomenal growth for the residential market over the past year. Driven by higher sales, new residential projects are expected to gain further strength through strategic land acquisitions in key locations and growth corridors. 

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