Introduction
The real estate sector in India has come a long way by becoming one of the fastest growing markets in the world. It is not only successfully attracting domestic real estate developers, but foreign investors as well. The growth of the industry is attributed mainly to a large population base, rising income level, and rapid urbanisation.
The sector comprises of four sub-sectors- housing, retail, hospitality, and commercial. While housing contributes to five-six percent of the country’s gross domestic product (GDP), the remaining three sub-sectors are also growing at a rapid pace, meeting the increasing infrastructural needs.
The real estate sector has transformed from being unorganised to a dynamic and organised sector over the past decade. Government policies have been instrumental in providing support after recognising the need for infrastructure development in order to ensure better standard of living for its citizens. In addition to this, adequate infrastructure forms a prerequisite for sustaining the long-term growth momentum of the economy.
Market Size/ Growth Prospects
The total revenue of the real estate sector was US$ 66.8 billion during 2010-11. By 2020, the sector is expected to earn a revenue of US$ 180 billion. In fact, the demand is expected to grow at a compound annual growth rate (CAGR) of 19 per cent between 2010 and 2014, with tier I metropolitan cities projected to account for about 40 per cent of this.
Growing infrastructure requirements from sectors such as education, healthcare and tourism are providing numerous opportunities in the sector. Further, India is going to produce an estimated two million new graduates from various Indian universities during this year, creating demand for 100 million square feet of office and industrial space. In addition, presence of a large number of Fortune 500 and other reputed companies will attract more companies to initiate their operational bases in India thus, creating more demand for corporate space.
Investments
India is ranked 20th in the list of world’s top real estate investment markets with investment volume of US$ 3.4 billion in 2012, according to the latest report titled 'International Investment Atlas' by Cushman & Wakefield. The sector is set for robust inflows of US$ 4-5 billion from overseas investors in the next couple of years, with Bangalore, Delhi and Mumbai emerging as the favourites, according to Jones Lang LaSalle, a global real estate consultancy giant.
Construction development sector (including townships, housing, built-up infrastructure & construction-development projects) has attracted a cumulative foreign direct investment (FDI) worth US$ 22,007.67 million from April 2000 to February 2013. FDI flows into the construction sector for the period April-February 2012-13 stood at US$ 1,260 million, according to the department of industrial policy and promotion (DIPP).
Bengaluru witnessed the highest number and value of private equity investments at Rs 32.5 billion (US$ 585.57 million) in 2012, recording more than double of investment over last year, followed by Mumbai with Rs 13 billion (US$ 234.17 million) and National Capital Region (NCR) with Rs 7 billion (US$ 126.09 million) of investments.
India needs to invest US$ 1.2 trillion over the next 20 years to modernise urban infrastructure and keep pace with the growing urbanisation, as per a report released by McKinsey Global Institute (MGI)-India's urban awakening.
Some of the major investments in the Indian real estate sector are:
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Ashiana Housing Ltd plans to foray into Gujarat's real estate with its first project worth Rs 100 crore (US$ 18.01 million) at Halol
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Mr Akhilesh Yadav, Chief Minister of Uttar Pradesh (UP) has inaugurated and laid the foundation of development projects worth Rs 3,337 crore (US$ 601.21 million) pertaining to Noida, Greater Noida and Yamuna Expressway
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Wave Infratech plans to invest Rs 500 crore (US$ 90.08 million) to set up its first affordable housing venture in the Delhi national capital region (NCR) area
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Mahindra Lifespace Developers has bought the stake of private equity Arch Capital in its joint venture residential project at Chennai. The buyout of the stake was estimated to be around Rs 70 crore (US$ 12.61 million)
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Godrej Properties Ltd (GPL) has signed a development management agreement with United Oxygen Company Pvt Ltd to develop residential housing project in Bengaluru. The project will offer approximately 1,000,000 sq. ft. of saleable area and will be developed as a residential housing project
Government Initiatives
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According to the latest reforms, FDI up to 100 per cent is allowed under the automatic route in townships, housing, built-up infrastructure and construction development projects to increase investment, generate economic activity, create new employment opportunities and add to the available housing stock and built-up infrastructure
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The Ministry of Housing & Urban Poverty Alleviation has planned to introduce a single-window system for clearance of all real estate projects across the country. The system could bring down the average approval time from the current 196 days to 45-60 days
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The Government of India has sanctioned projects worth Rs 41,723 crores (US$ 7.51 billion) for building of 1,569,000 houses/dwelling units for economically weaker/lower income group sections under the Ministry’s flagship Jawaharlal Nehru National Urban Renewal Mission (JNNURM) programmes
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Housing finances are becoming feasible with the housing loan limit being raised to US$ 52080 for priority sector lending
Some of the initiatives taken in the union budget 2013-14 include:
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For homes and flats with a carpet area of 2,000 square feet or more or of a value of Rs 1 crore (US$ 180,213) or more, which are high-end constructions, where the component of services is greater, rate of abatement reduced from 75 to 70 percent
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Rs 6,000 crore (US$ 1.08 billion) were given to Rural Housing Fund
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National Housing Bank plans to set up Urban Housing Fund. Rs 2,000 crore (US$ 360.47 million) will be provided to the fund in the current financial year
Road Ahead
The real estate industry in India is yet in a promising stage. The sector happens to be the second largest employer after agriculture and is expected to grow at the rate of 30 per cent over the next decade. A growing migrant population due to increasing job opportunities, together with healthy infrastructure development, is underpinning demand in the region’s residential real estate market
The Kalpataru spokesperson feels that the Finance Ministry's motivation through softening of interest rates and lending more to the real estate sector will have a positive impact on both developers and consumers. The real estate market could start to perform better as the easing of FDI norms will begin to show results during the second half of the year, according to Lalit Kumar Jain, Chairman & Managing Director, Kumar Urban Development Ltd and President National – CREDAI. "The economy will also recover in 2013 which in turn will perk up the real estate sector in India. With the government trying to introduce developer and buyer friendly policies, the outlook for real estate in 2013 does look promising," said Mr Jain.
Exchange Rate Used: INR 1 = US$ 0.0184 as on May 24, 2013
References: Ministry of Finance, Press Information Bureau (PIB), Media Report, Department of Industrial Policy and Promotion (DIPP), CREDAI, The Union Budget 2013-14