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"A home is one of the most important assets that most people will ever buy. Homes are also where memories are made and you want to work with someone you can trust” is how Warren Buffett, a globally acclaimed American businessman and investor highlights the dual significance of a home as both a financial asset and a place where life unfolds.

Buffett seems to have read the Indian households’ sentiments to perfection. Owning a home for an average Indian is as much a move towards wealth building as the fulfilment of emotional security for the family and future. Every Indian, rich or poor, aspires to have his or her own home and is ready to pay for it.

This is reflected in the sharp rise in residential housing sales in India over the years. India’s real estate market is expected to reach $ 1 trillion-mark by 2030 – up from $ 120 billion in 2017. Retail, hospitality, and commercial real estate are also growing significantly, providing the much-needed infrastructure for India's growing development needs.    

India’s real estate sector is attracting special attention from policy makers. Valued at $477 billion in 2022, it is the country’s second-largest employment generator after agriculture. The sector is deeply interlinked to a large number of allied industries including steel, cement and bricks. And thus, the growth of the sector has a bigger role in the macroeconomic dynamics of the country. The real estate sector is estimated to account for 7.3% of the economy and is projected to contribute about 13% to GDP by 2025. Recent projection by Statista shows that the sector’s contribution could rise to 15.5% by 2047, making it an even larger pillar of India’s economy.

The sharp growth of the sector and its linkages with a number of core industries has attracted big corporate houses and the resultant consolidation have led to the expansion of the Indian property market with the value of real estate under construction jumping over two-fold in the last one decade, according to a report by FICCI and Anarock. The expansion of the real estate market was largely driven by the increasing demand for residential houses. Robust occupier interest, the rise of organised real estate developers, and the entry of institutional capital have acted as catalysts for the growth

Higher economic growth led to rapid urbanisation and increasing disposable income of households accelerated the demand for residential properties. Moreover, various initiatives undertaken by the government such as investments in smart city projects, lower interest rate and tax exemption for interest on housing loans have also helped to expand the demand for residential houses.

The growth of the sector was also impacted positively by government reform policies. 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.

Real estate sector grows steadily

Buoyed by a healthy economic growth India's real estate sector has emerged as a pivotal player in the country's development. India’s real estate market is one of the most dynamic and fastest-growing in the world. 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 economic buoyancy and a steady GDP growth have increased the demand for commercial space too. 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, the report added.

Record rise in residential property sales

The growing demand for residential houses has seen a sharp rise in residential property sales over the years. The residential housing sales during the first six months of 2024 in the seven major cities, namely, Bengaluru, Chennai, the National Capital Region, Hyderabad, Kolkata, Mumbai and Pune increased by over 22.4% to 1,54,291 units from 1,26,587 during the same period of 2023. The residential sales are set to touch a new record in 2024, according to JLL Research.

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 the supply side. 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 volume sales were largely led by Mumbai, Delhi NCR and Bengaluru markets. Together these three cities accounted for 61% of the total half yearly sales in 2024 – up from 57% in the same period a year ago. Bengaluru led the sales growth with a 33.5% rise followed by Delhi NCR with 29.1% and Mumbai with 28.9%.

And if Kolkata saw the highest percentage growth of 62.8% in residential sales during the first half of 2024, the market with just about 6% share in pan India map remains a marginal player in overall reckoning. Chennai was the only city that saw a decline in residential property sales in 2024.

According to JLL Research, the demand for residential properties would remain buoyant in the medium term as well. In H1 2024, the Indian residential sector witnessed remarkable progress, achieving historical sales of more than one and a half lakh units.

The sharp rise in residential property sales pushed by a strong consumer demand has encouraged developers to launch new projects across the top seven cities of India. Most of the new launches were witnessed in Mumbai with 22% share in pan India new launches followed by Hyderabad with 19.4% share and Bengaluru with 18.4%. A huge number of 1,59.455 units residential launches were recorded in H1 2024 – more than the units sold during the same period. Delhi NCR saw the highest rise of 58.7% in new launches in 2024 followed by Bengaluru with 26%. However, unlike in the recent past, Pune saw a sharp 22.2% fall in new launches. Kolkata witnessed 11.2% decline in new launches during the same period while Chennai saw 10% fall.   

Demand for luxury homes soars

Interestingly, the majority of the new launches in H1 2024 were in the premium segment with a price bracket of above rupees one crore. Around 62% of the new launches were in the price bracket above rupees one crore, the JLL report claimed.

India's millennials, comprising 36% of the population, accounted for 54% of homebuyers last year, with an estimated combined spending power of over $330 billion. With rising disposable income, they seek bigger homes and invest in high-end housing units, with luxury housing sales in India's top seven cities jumping five-fold from 2018 to 2023.

A survey by Sotheby's International Realty finds that a growing number of high-net-worth individuals, including NRIs, are considering purchasing luxury real estate in India. Amidst these developments, the demand for luxury homes is increasing phenomenally as the growing affluent class aspires for superior amenities, spacious living areas, distinctive designs, prestigious addresses, a healthy lifestyle, and a high return on investment.                  

There has been a remarkable surge in new launches within the premium segment (priced between rupees three and five crore) and luxury segment (priced above `5 crore) compared to other segments. In H1 2024, launches in the premium segment surged by 169% Y-o-Y, followed by a 116% Y-o-Y increase in luxury segment launches. On the contrary, the mid-priced segment (priced between Rs 50 lakh – Rs. 1 crore) experienced a 14% Y-o-Y decline during the same period. The decline at 20.6^ was in new launches was even sharper in low budget residences (priced below Rs.50 lakh). This trend suggests developers’ active response to the surge in demand for high value homes among the target clientele.

According to the Luxury Outlook Survey 2024 the uptick in NRI participation reflects renewed confidence in the Indian property market and the appeal of investing in premium and luxury real estate, particularly in Goa, Mumbai, and Delhi-NCR.

Residential prices move upwards

The demand for residential properties has increased despite a sharp price growth. The All India House Price Index (HPI) increased 4.3% annually in the second quarter of the 2024-25 fiscal as compared to 3.3% growth in the previous quarter and 3.5% growth a year ago, according to data released by the Reserve Bank of India (RBI) last month.

The RBI released its quarterly house price index for the September quarter of 2024-25 last month, based on transaction-level data received from the registration authorities in ten major cities. HPI has gone up by nearly 67% since 2014-15 amid the pandemic, high inflation and rising interest rates.

The HPI is calculated on the basis of performance in ten major cities. The cities are Ahmedabad, Bengaluru, Chennai, Delhi, Jaipur, Kanpur, Kochi, Kolkata, Lucknow, and Mumbai. The RBI said the annual HPI growth varied widely across the cities -- ranging from a high growth of 8.8% (Bengaluru) to a decline of (-) 2 per cent (Kanpur).

Average housing prices across markets rose 11% year-on-year at Rs.11,000 per sq ft during Q3 of 2024, led by sturdy demand and positive market sentiments, industry body CREDAI said. The average housing prices have increased for the 15th consecutive quarter since 2021. All the eight major cities saw an annual increase in housing prices with Delhi NCR witnessing the highest rise at 32%, followed by Bengaluru at 24% rise during the quarter. 

After registering record high sales over the last two years, the demand momentum across the top cities is stabilizing. Nevertheless, with anticipation of healthy residential activity in the last quarter, 2024 is likely to end on a strong note, it said.

Despite the price rise, the overall unsold inventory has witnessed a quarterly drop for the third consecutive quarter, led by healthy uptake in housing units. At the end of September 2024, unsold inventory stood at over 10 lakh housing units across major cities, with Mumbai Metropolitan Region accounting for a majority at about 40% share.

Office space sales touch new record

While home sale volumes boomed in. H1 2024, the commercial real estate market too witnessed a sharp uptrend due to the growth of global capability centres and higher need of office spaces by the domestic companies. In fact, India-facing businesses have seen significant growth, leasing 14.3 million square feet in H1 2024 accounting for 41% of total leasing volume against 35% in the same period in 2023.

The office space sales across eight major cities touched a record 34.7 million square feet in the first half of 2024, marking a 33% annual growth from 26.1 million square feet in H1 2023, according to Knight Frank India’s flagship report on India Real Estate - Office and Residential Market (H1 2024).

The report revealed that Bengaluru remained the largest office market with transactions of 8.4 million square feet, accounting for 26% of total office volume transactions across the country. Mumbai (5.8 million square feet) and National Capital Region (5.7 million square feet) were the other leading commercial markets during the first half of 2024.

In terms of growth, Ahmedabad recorded the highest year-on-year growth of 218% albeit on a smaller base. Chennai was the only market to see a decline in transaction. Backed by a growing demand, the office market saw 25.1 million square feet completed in H1 2024. Vacancy rates dropped to 15.6% due to strong demand, boosting rents. Chennai led with 9% year-on-year growth, followed by Bengaluru at 7%.

Despite the recent growth the real estate sector remains uncertain about the future. The fear of economic downturns and fluctuations often lead to decreased property demand, stagnant property values, and increased competition among real estate businesses.

Escalating construction costs, land prices, and property taxes pose significant challenges to real estate developers and potential homebuyers. Affordability concerns can limit access to housing and impact the overall real estate market.

With limited land availability for construction, outdated building technologies, Indian real estate has been facing multiple issues. Escalating construction costs, land prices, and property taxes pose significant challenges to real estate developers and potential homebuyers.