Real Estate
Real estate is one of the fastest growing sectors of the Indian economy.

Real Estate Industry in India

Latest update: August, 2014

Market size of real estate in India

The market size of real estate in India is expected to increase at a CAGR of 11.2 per cent during FY2008 - 2020.

Market size of real estate in India

Demand analysis of top 8 cities ('000 units)

Demand to grow at a CAGR of 2 per cent over the period 2013-17 across top 8 cities in India.

Demand analysis of top 8 cities ('000 units)

FDI in construction development sector as a per cent of India's total FDI

Total FDI in the construction development sector during April 2000-April 2014 stood at around US$ 23.38 billion.

FDI in construction development sector as a per cent of India's total FDI

Real estate demand in education sector

The top seven cities are likely to account for 70 per cent of total demand for real estate in the education sector.

Real estate demand in education sector

Updated: August, 2014

SECTORAL REPORT | April, 2014

Introduction

The Indian real estate sector is one of the fastest growing and globally recognised sectors. It comprises four sub sectors-housing, retail, hospitality, and commercial. The real estate industry's growth is linked to developments in the retail, hospitality and entertainment (hotels, resorts, cinema theatres) industries, economic services (hospitals, schools) and information technology (IT)-enabled services (like call centres) etc and vice versa. The total realty market in the country is expected to touch US$ 180 billion by 2020.

India ranks third for the most LEED (Leadership in Energy and Environmental Design)-certified space globally, with nearly 12 million sq m. The LEED system is the most widely used rating system guiding the design, construction, operations and maintenance of green buildings.

Private equity (PE) funding has picked up in the last one year due to attractive valuations and low level of bank funding to the sector. Delhi NCR alone has already attracted PE investments of Rs 80 crore (US$ 13.22 million) in first quarter of 2014.Moreover, with the government trying to introduce developer and buyer friendly policies, the outlook for the real estate sector in 2014 looks promising.

Market size

Recent years have seen the Indian real estate sector grow, especially the commercial real estate segment. 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. Bangalore and Delhi-National Capital Region (NCR) come second and third on the list, with returns of 12 per cent and 8-11 per cent respectively. Delhi-NCR was the biggest office market in India with 110 million sq ft, out of which 88 million sq ft were occupied.

The residential segment of real estate has also seen tremendous growth in recent years owing to the continuous growth in population, migration towards urban areas, ample job opportunities in service sectors, growing income levels, rise in nuclear families and easy availability of finance.

In the residential segment, the number of new launches in the first quarter of 2014 has increased by 43 per cent at 55,000 units across eight major cities. Bengaluru recorded the largest number of units launched, an increase of 22 per cent at 16,838 units, followed by Mumbai and Chennai with new launches at 10,698 units and 7,436 units with a growth rate of 93 per cent and 191 per cent respectively, during the first quarter.

With the government allowing 100 percent foreign direct investment (FDI) in this sector, the number of foreign firms owning real estate projects in India has also increased. The construction development sector, including townships, housing, built-up infrastructure and construction-development projects garnered total FDI worth US$ 23,587.25 million in the period April 2000-June 2014.

Investments

With the rise in demand for office as well as residential space, the Indian real estate sector has witnessed high growth in recent times. Some of the major investments in the real estate sector in the recent past are as follows:

  • Piramal Fund Management has launched the Indiareit Apartment Fund which seeks to buy residential apartments in the Tier I market, and has kept aside a corpus of Rs 350 crore (US$ 57.86 million) for the same.
  • US-based PE company Blackstone plans to step up its presence in the residential segment and has lined up about Rs 1,000 crore (US$ 165.32 million) to invest in residential projects across Indian metros. Its first investment in the residential sector was in the Chennai project of Bengaluru-based Ozone Group.
  • Panchshil Realty and Blackstone have bought a majority stake in Express Towers, for around Rs 870 crore (US$ 143.83 million).
  • Mr Donald Trump plans to extend his company, Trump Organisation's global footprint into India and invest in two realty deals. Both the deals involve ultra-premium luxury projects, which will be owned, developed and promoted by local developers.
  • Mahindra Group has entered affordable housing through its property development arm Mahindra Lifespaces (MLDL). MLDL plans to launch two housing projects in Boisar near Mumbai and Avadi in Chennai with the newly created business vertical Happinest.
  • Canada-based Brookfield Property has entered into an agreement to acquire Candor Investments, a subsidiary of Unitech Corporate Park (UCP), for about Rs 2,000 crore (US$ 330.66 million).

Government Initiatives

The Government of India has announced a host of measures to spur the real estate sector, which include an allocation of Rs 7,060 crore (US$ 1.16 billion) for the development of 100 smart cities, a reduction in the size of projects eligible for FDI from 50,000 sq m to 20,000 sq m, and having the minimum investment limit for FDI to US$ 5 million.

A committee on Streamlining Approval Procedure for Real Estate Projects (SAPREP) was constituted by the Ministry of Housing & Urban Poverty Alleviation (MHUPA) to streamline the process of seeking clearances for real estate projects.

The governments of different states have also taken various measures to facilitate the growth of this sector. For instance, the Punjab government has proposed to exempt residents having houses with an area of up to 125 square yards from paying the levy and delink tax payment from collector rates. It has also proposed to keep vacant plots out of the ambit of property tax which will be implemented during 2014-15.

The Indian Green Building Council (IGBC) has joined hands with the US Green Building Council (USGBC) to strengthen their association for the next 10 years to focus on areas of knowledge exchange and work on the green building movement in India. The USGBC also plans to expand its support for LEED in India.

Road Ahead

The Indian real estate sector continues to be a favoured sector for investments from international as well as private investors. In the upcoming years, the residential as well as commercial segments of the real estate industry is set for major growth, aided in no small part by the government's plans and initiatives to boost this sector.

Excise duty reduction on cement and steel will lower project costs and expansion of the interest subsidy on loans will boost developers' interest in this segment. Moreover, tax measures such as increasing the limit of interest deduction on home loans will provide necessary motivation to consumers to increase buying activity and revive demand in the value and affordable segment. Further, demand for space from sectors such as education and healthcare has opened up ample opportunities in the real estate sector.

Exchange Rate Used: INR 1 = US$ 0.0165 as on August 26, 2014

References: Ministry of Finance, Press Information Bureau (PIB), Media Report, Department of Industrial Policy and Promotion (DIPP), CREDAI, The Union Budget 2014-15

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

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