A Thorough Rundown of The Real Estate Market In India, Everything You Need To know About The ‘Safest Investment’

Real Estate sector

Introduction

The real estate sector is one of the most globally recognized sectors. It comprises of four sub-sectors – housing, retail, hospitality, and commercial. The growth of this sector is well complemented by the growth in the corporate environment and the demand for office space as well as urban and semi-urban accommodations. The construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy.

It is also expected that this sector will incur more non-resident Indian (NRI) investment, both in the short term and the long term. Bengaluru is expected to be the most favored property investment destination for NRIs, followed by Ahmedabad, Pune, Chennai, Goa, Delhi and Dehradun.

Market Size

By 2040, the real estate market will grow to Rs 65,000 crore (US$ 9.30 billion) from Rs 12,000 crore (US$ 1.72 billion) in 2019. The real estate sector in India is expected to reach a market size of US$ 1 trillion by 2030 from US$ 120 billion in 2017 and contribute 13 percent to the country’s GDP by 2025. Retail, hospitality, and commercial real estate are also growing significantly, providing the much-needed infrastructure for India’s growing needs. Indian real estate increased by 19.5 percent CAGR from 2017 to 2028.

Office space has been driven mostly by growth in ITeS/IT, BFSI, consulting and manufacturing sectors. During 2019, the office leasing space reached 60.6 MSF across eight major cities, registering a growth of 27 percent y-o-y. In 2019, office sector demand with commercial leasing activity reached 69.4 MSF. Co-working space across the top seven cities increased to reach 12 sq ft by end of 2019.

Warehousing space is expected to reach 247 MSF in 2020 and see investment worth Rs 50,000 crore (US$ 7.76 billion) during 2018-20. Grade-A office space absorption is expected to cross 700 MSF by 2022, with Delhi-NCR contributing the most to this demand.

Housing sales reached 2.61 lakh units in 2019 across seven major cities.

Government Initiatives

Centre’s education schemes helped in promoting holistic development of children: Modi

The government of India along with the governments of the respective states has taken several initiatives to encourage development in the sector. The Smart City Project, with a plan to build 100 smart cities, is a prime opportunity for real estate companies. Below are some of the other major Government initiatives:

In order to revive around 1,600 stalled housing projects across top cities in the country, the Union Cabinet has approved the setting up of Rs 25,000 crore (US$ 3.58 billion) alternative investment fund (AIF).

Under Pradhan Mantri Awas Yojana (Urban) (PMAY (U)), 1.12 crore houses have been sanctioned in urban areas, creating 1.20 crore jobs.

The government has created an Affordable Housing Fund (AHF) in the National Housing Bank (NHB) with an initial corpus of Rs 10,000 crore (US$ 1.43 billion) using priority sector lending shortfall of banks/financial institutions for micro-financing of the HFCs.

On February 29, 2020, India formally approved 417 special economic zones (SEZs), of which 238 were already in operation. The majority of the SEZs are in the IT/ ITeS sector.

Investments in real estate

The Indian real estate sector has witnessed high growth in recent times with rise in demand for office as well as residential spaces. Real estate attracted around Rs 43,780 crore (US$ 6.26 billion) in investment in 2019. The retail segment attracted PE (Private Equity) investment of around US$ 1 billion in 2019. Institutional investment in the sector stood at US$ 712 million during the quarter ended in March 2020. Real estate attracted around US$ 14 billion from foreign PE between 2015 and Q32019.

Export from SEZs reached Rs 7.01 lakh crore (US$ 100.30 billion) in FY19 and grew by almost 14.5 percent to Rs 3.82 lakh crore (US$ 54.66 billion) in H1FY20.

According to the data released by the Department for Promotion of Industry and Internal Trade Policy (DPIIT), construction is the fourth largest sector in terms of FDI inflow. FDI in the sector (includes construction development and construction activities) stood at US$ 42.50 billion from April 2000 to March 2020.

Some of the major investments and developments in this sector are as follows:

In March 2020, the Government approved proposals from TCS and DLF to set up SEZs for IT sector in Haryana and Uttar Pradesh.

Blackstone crossed the US$ 12 billion investment milestone in India.

Puravankara Ltd, a realty firm, plans to invest around Rs 850 crore (US$ 121.6 million) over the next four years to develop three ultra-luxury residential projects in Bengaluru, Chennai and Mumbai.

First REIT, which raised Rs 4,750 crore (US$ 679.64 million), was launched in early 2019 by global investment firm Blackstone and realty firm Embassy group.

In January 2020, RMZ Corp entered into a strategic and equal partnership with Mitsui Fudosan (Asia) Pte Ltd to expand its business footprint.

Housing sales reached 2.61 lakh units in 2019 across seven major cities.

In September 2018, Embassy Office Parks announced that it would raise around Rs 52 billion (US$ 775.66 million) through India’s first Real Estate Investment Trust (REIT) listing.

Real estate remains one of the most affected industries from the ongoing pandemic

corona impact on real estate

On account of the current pandemic, sales of houses in the top eight cities of the country dropped by 54 percent year-on-year to a 10-year low of 59,538 units during the first half of 2020. The fresh house launches also drop by 46 percent to 60,489 units during the period. Developers either offering a discount or some form of a financial benefit scheme to prospective homebuyers weakened the price of residential properties furthermore.

Talking about the all-around action in the real estate industry, the ongoing pandemic hampered the economy and caused sales to fall a massive 84 percent year-on-year to 9,632 units in the second quarter of this year while sales of 49,905 units were reported in the first quarter.

India drops to 54th position globally in terms of appreciation in house prices

Out of a total of 56 countries and provinces, India stands at 54th position internationally in terms of appreciation in residential real estate prices with an annual deterioration of 1.9 percent in the prices of home.

India moves down 11 spots, compared to Q1 2020 in the Global House Price Index Q2 from 43rd rank to 54th.

In India, the residential sector has been impacted by low demand across most markets. Moreover, the downshift due to the pandemic in the global economy has adversely affected the real estate sector and the purchasing power of people buying houses.

85% fall in private equity inflows into Indian real estate 

 

Investors in both foreign and domestic market are adopting a cautious approach to Indian real estate against the backdrop of the ongoing pandemic, the overall private equity inflows into the sector stood at Rs 65 billion through August 2020, which is just 15 percent in the same period last year.

Modern asset classes such as data centers and rental housing gained significance among investors. The dominating areas have been data centers during 2020 through August, navigated by demand for cloud infrastructure, as well as offices as they tend to offer constant income in the form of rent. Strong domestic consumption also maintained investors’ con­fidence in industrial and logistics properties.

While the entire real estate is shaken by the pandemic M3M Group and Lodha Developers remains unaffected recording robust sales

The M3M Group claims to have recorded sales worth Rs 1150 crore during the July to August 2020 period on launching its Unlock Gurugram campaign, and having struck the right note with the end consumer, the company is now targeting sales of Rs 2200 crore, across verticals, in the festive season of October-November. These projects are situated on the Golf Course Extension Road, a high growth corridor of Gurugram.

“Our campaign bolstered the consumer sentiment, looked at propositions for the market in keeping with what would be the trend in the post-Covid world. With our bold campaign offerings, in a short span of 30 days we achieved these sales figures – Rs 350 crore in under-construction – residential; Rs 150 crore in delivered residential; and Rs 650 crore in retail and offices” he said.

As per the company, it had anticipated more demand in the premium residential segment of Rs 1-2 crore. However, it surprisingly did amazingly well with the commercial, retail segment as well. Unit-wise sales have been 65:35 for commercial v/s residential.

The Lodha Group has also recorded sales of Rs 1150 crore during July-August 2020. “Over a span of past few months, the Lodha Group had witnessed a positive shift in consumer behavior towards owning a home vis-à-vis renting, and an increasing preference for ready-to-move-in homes as well as integrated living developments. Homebuyers are now seeking spacious apartments with decks, balconies, garden area, walking arena, which accentuates the need for healthy living. Catering to the evolving demands, we clocked over Rs 550 crore of sales for the month of July 2020 and over Rs 600 crore of sales in the month of August 2020,” said a company spokesperson.

Road ahead

The real estate industry will have to rebuild itself to understand, comprehend, strategize and execute in new innovative and creative ways to meet the arising modern prerequisites. The era of ‘Business as Usual’ is over, and creative disruption shall be a new principle. Even if it prompts the real estate sector to go back to the drawing board, still it offers new avenues to explore new innovations as also to fast-track incorporation of new technologies, be it construction technologies, home automation, IoT, or artificial intelligence. Strategies will require incorporated altered norms of social distancing, mobility, density and health deliberations.

The theory of Work from Home has indeed caught up across the spectrum but is specifically significant for the millennials in the IT and similar industry. After COVID, the offices shall buzz again, but clearly not how it used to. This will have a great impact on the commercial and residential sectors, which will also need to factor in the requirement of increased spacing and other health interests..

The prevailing state of real estate has a large inventory of delayed and still unfinished houses that would push the buyers towards nearly completed projects, requiring the builders to put in much larger investments into their ventures. Conditioning these increased investments would create an additional financial obligation, which will necessitate completing the projects in the quickest possible time for them to be able to sell their properties to the buyers to create reserves. In order to bring down the construction time, usage of construction technologies would be essential. For modular construction, the technologies required like precast systems, formwork systems, steel construction etc have been gaining popularity in recent times, but after Covid will become a criterion.

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