Real Estate
The Indian real estate market size is expected to reach US$ 180 billion by 2020.

Real Estate Industry in India

Latest update: July, 2015

 

Key drivers for retail growth in India

•Booming consumerism in India 

•Organised retail sector growing 25-30 per cent annually 

•Entry of MNC retailers 

• India's population below 30 years of age having exposure to global retail are expected to drive demand for organised retail 

Area Sown

 

Last Updated: July, 2015

SECTORAL REPORT | March, 2015

Introduction

The Indian real estate sector is one of the most globally recognised sectors. In the country, it is the second largest employer after agriculture and is slated to grow at 30 per cent over the next decade. It comprises four sub sectors - housing, retail, hospitality, and commercial. The growth of this sector is well complemented by the growth of the corporate environment and the demand for office space as well as urban and semi-urban accommodations.

According to a study by ICRA, 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) investments in the near future, as a survey by an industry body has revealed a 35 per cent surge in the number of enquiries with property dealers. Bengaluru is expected to be the most favoured property investment destination for NRIs, followed by Ahmedabad, Pune, Chennai, Goa, Delhi and Dehradun.

Market Size

The Indian real estate market size is expected to touch US$ 180 billion by 2020. The housing sector alone contributes 5-6 per cent to the country's gross domestic product (GDP). Also, in the period FY08-20, the market size of this sector is expected to increase at a compound annual growth rate (CAGR) of 11.2 per cent. Retail, hospitality and commercial real estate are also growing significantly, providing the much-needed infrastructure for India's growing needs.

Real estate has emerged as the second most active sector, raising US$ 1.2 billion from private equity (PE) investors in the last 10 months.

Foreign investors have bought tenanted office space worth over US$ 2 billion in India in 2014, a four-fold rise compared to the previous year, in order to increase their rent-yielding commercial assets in Asia's third largest economy.

According to a study by Knight Frank, Mumbai is the best city in India for commercial real estate investment, with returns of 12-19 per cent likely in the next five years, followed by Bengaluru and Delhi-National Capital Region (NCR). Also, Delhi-NCR was the biggest office market in India with 110 million sq ft, out of which 88 million sq ft were occupied. Sectors such as IT and ITeS, retail, consulting and e-commerce have registered high demand for office space in recent times.

Delhi’s Central Business District (CBD) of Connaught Place has been ranked as the sixth most expensive prime office market in the world with occupancy costs at US$ 160 per sq ft per annum, according to a survey by CBRE.

Investments

The Indian real estate sector has witnessed high growth in recent times with the rise in demand for office as well as residential spaces.

Blackstone Group Lp is all set to become the largest owner of commercial office real estate in India after a three-year acquisition drive in which it spent US$ 900 million to buy prime assets.

According to data released by Department of Industrial Policy and Promotion (DIPP), the construction development sector in India has received foreign direct investment (FDI) equity inflows to the tune of US$ 24,012.87 million in the period April 2000-December 2014.

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

  • Google Capital has invested in Bengaluru-based online property search platform, CommonFloor.com.
  • Omkar Realtors and Developers Pvt Ltd is in talks to raise Rs 400 crore (US$ 66.68 million) from KKR India Asset Finance Pvt Ltd, the local arm of global investor Kohlberg Kravis Roberts and Co LP (KKR).
  • Goldman Sachs Group bought shares worth Rs 255 crore (US$ 41.23 million) in Vatika Hotels Pvt Ltd, a company owned by real estate and hospitality firm Vatika Group.
  • SoftBank Internet and Media Inc will invest, along with Falcon Edge Capital and others, US$ 90 million in Locon Solutions Pvt Ltd, which runs Housing.com - a realty website. The SoftBank Group will become the largest investor in Housing.com after this round of funding.
  • The Qatar Prince, Hamad bin Khalifa Al Thani, plans to invest Rs 1,000 billion (US$ 16.17 billion) over the next five years in at least 10 smart cities of India. He has already tied up with a Delhi-based businessman for taking the investment forward through projects in real estate, sea ports and airports, besides smart cities.
  • Real estate firm Supertech has planned to invest about Rs 2,000 crore (US$ 323.49 million) in Gurgaon over the next few years by launching several luxury and affordable projects.

Government Initiatives

Under the Sardar Patel Urban Housing Mission, 30 million houses will be built by 2022, mostly for the economically weaker sections and low-income groups, through public-private-partnership (PPP), interest subsidy and increased flow of resources to housing sector', according to Mr M Venkaiah Naidu, Union Minister of Urban Development, Housing and Urban Poverty Alleviation and Parliamentary Affairs, Government of India.

The Government of India along with the governments of the respective states have taken several initiatives to encourage the development in the sector. Some of them are as follows:

  • The Government of Maharashtra has announced a series of measures to bring transparency and increase the ease of doing business in the real estate sector.
  • The Government of India has relaxed the norms to allow foreign direct investment (FDI) in the construction development sector. This move should boost affordable housing projects and smart cities across the country.
  • The Securities and Exchange Board of India (SEBI) has notified final regulations that will govern real estate investment trusts (REITs) and infrastructure investment trusts (InvITs). This move will enable easier access to funds for cash-strapped developers and create a new investment avenue for institutions and high net worth individuals, and eventually ordinary investors.
  • The Telangana Real Estate Developers' Association (Treda) plans to host the Fifth Treda Property Show 2014 at Hitex Centre, Hyderabad. The show will be open to a mix of the populace, including prospective property purchasers, investors, architects and others.
  • The State Government of Kerala has decided to make the process of securing permits from local bodies for construction of houses smoother, as it plans to make the process online with the launch of a software called 'Sanketham'. This will ensure a more standardised procedure, more transparency, and less corruption and bribery.

Road Ahead

Responding to an increasingly well-informed consumer and keeping in mind the globalization of the Indian business outlook, real estate developers have also shifted gears and accepted fresh challenges.

The most marked change has been the shift from family owned businesses to professionally managed ones. Real estate developers, in meeting the growing need for managing multiple projects across cities, are investing in centralized processes to source material and organize manpower and hiring qualified professionals in areas like project management, architecture and engineering.

The growing flow of FDI into Indian real estate is encouraging increased transparency. Developers, in order to attract funding, have revamped their accounting and management systems to meet due diligence standards.

Exchange Rate Used: INR 1 = US$ 0.016 as on February 26, 2015

References: Ministry of Finance, Press Information Bureau (PIB), Media Reports and Publications, Department of Industrial Policy and Promotion (DIPP), CREDAI.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

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