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Real Estate Industry in India

May, 2013

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:

  • 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
  • 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
  • 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
  • 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)
  • 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