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Real Estate Industry in India

June, 2014


The Indian real estate sector has come a long way and is today one of the fastest growing markets in the world. It comprises four sub-sectors – housing, retail, hospitality, and commercial. While housing contributes to five–six percent of India’s gross domestic product (GDP), the remaining three sub-sectors are also increasing at a fast pace. The total realty market in the country is expected to touch US$ 180 billion by 2020.

Real estate in India is being recognised as an infrastructure service that is driving the economic growth engine of the country. Growing infrastructure requirement in diverse sectors such as tourism, education, healthcare, etc., are offering several investment opportunities for both domestic as well as foreign investors. Total investment by private equity (PE) funds in the real estate sector from January–March 2014 was approximately Rs 28 billion (US$ 465.19 million). This is a substantial increase of 28 per cent compared to the previous quarter and close to 2.5 times the investments during January–March 2013.

The role of the Government of India has been instrumental in the development of the sector. With the government trying to introduce developer and buyer friendly policies, the outlook for the real estate sector in 2014 does look promising.

Market Size

The market size of the Indian real estate sector stood at US$ 55.6 billion in 2010–11 and is expected to touch US$ 180 billion by 2020. In fact, the demand is expected to grow at a compound annual growth rate (CAGR) of 19 per cent in the period 2010–2014, with Tier I metropolitan cities expected to account for about 40 per cent of this growth. 

The net office space absorption across the top eight cities – Delhi-NCR, Mumbai, Bengaluru, Chennai, Hyderabad, Pune, Kolkata and Ahmedabad – was up 58 per cent during January–March 2014 as compared to the corresponding period last year, according to real estate consultancy Cushman & Wakefield. Among the eight cities, Ahmedabad and Delhi-NCR recorded a threefold increase in net absorption during the period over January–March 2013.

The number of new launches in the residential segment during 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 at an increase of 22 per cent at 16,838 units, followed by Mumbai and Chennai, according to a report by Cushman & Wakefield.

Investments Opportunities

As corporates look to expand businesses, India is expected to witness major demand for office space in 2014. Office space absorption across the country’s seven major cities – Delhi-NCR, Mumbai, Bengaluru, Chennai, Pune, Hyderabad and Kolkata – is likely to increase seven per cent this year to 29 million square feet (sq ft), according to global real estate consultant DTZ. 

New supply of retail space in shopping malls in India’s top seven cities is expected to more than double to 11.7 million sq ft in 2014. This will take up the mall stock across India’s metropolitan cities to 87.7 million sq ft by the end of the year, according to a report by Jones Lang LaSalle.

The construction development sector, including townships, housing, built-up infrastructure and construction-development projects garnered total foreign direct investment (FDI) worth US$ 23,131.64 million in the period April 2000–February 2014. Construction (infrastructure) activities during the period received FDI worth US$ 2,462.60 million, according to the Department of Industrial Policy and Promotion (DIPP).

The following are some of the major investments and developments in the Indian real estate sector:

  • Larsen & Toubro (L&T) has bagged a major residential order to build 271 villas and 24 towers in Bengaluru. “One of our key focus areas has been the growing potential in the residential sector and by winning these prestigious orders we have made significant inroads into this space," said Mr S N Subrahmanyan, Senior Executive Vice-President (Infrastructure and Construction), L&T.
  • Somany Ceramics plans to invest Rs 150 crore (US$ 24.93 million) over the next 12–24 months for capacity expansion and brand building. “We are looking to finalise two joint ventures (JV) soon. The capacity of our own facilities will also be expanded to shore up total production by 15 million sq m,” according to Mr Abhishek Somany, Joint Managing Director, Somany Ceramics.
  • Lodha Developers has acquired Clariant Chemicals’ 87-acre plot of land in Thane, Mumbai, for Rs 1,154 crore (US$ 191.76 million). “Thane is a rapidly developing part of the Mumbai Metropolitan Region and we see strong, sustained demand for quality homes in the region,” said Mr Abhinandan Lodha, Deputy Managing Director, Lodha Group.
  • Xander Group has invested Rs 370 crore (US$ 61.47 million) in Kapstone Constructions, a subsidiary of Mumbai-based developer, Rustomjee. Kapstone Constructions is currently developing the Rustomjee Urbania township in Thane, spread over 127 acres.
  • Ambience Group plans to invest about Rs 1,800 crore (US$ 299.07 million) over the next four years to develop two housing projects in Noida and Gurgaon, comprising 1,100 housing units and a 350-acre township at Panipat.
  • Ansal Buildwell Ltd has signed a memorandum of understanding (MoU) with Bahrain-based VKL Holdings, Al-Namal Group. The MoU will provide both companies the opportunity for joint development in the housing and infrastructure sectors in both India and Bahrain.

Government Initiatives

The Government of India has allowed FDI up to 100 per cent in development projects for townships and settlements. Hundred per cent FDI is also permitted in the hotel and tourism sector through the automatic route.

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 Real Estate (Regulation and Development) Bill, 2013, as approved by the Union Cabinet is a pioneering initiative aimed at delivering a uniform regulatory environment to protect the consumer, help in quick verdicts of disputes and ensure systematic growth of the sector.

Road Ahead

The Indian construction and real estate sector continues to be a favoured destination for global investors. Several large global investors, including a number of sovereign funds, have taken the first move by partnering with successful local investors and developers for investing in the Indian real estate market. This is expected to result in high transaction activity, especially in income yielding commercial office assets during 2014.

The residential asset class looks to have great potential for growth. “With housing requirements growing across cities and funds investing in the asset class primarily in the form of NCDs providing fixed returns, investments in the right project have the potential to yield healthy returns,” said Mr Sanjay Dutt, Executive Managing Director – South Asia, Cushman & Wakefield.

Further, demand for space from sectors such as education and healthcare has opened up ample opportunities in the real estate sector. The country still needs to add three million hospital beds to meet the global average of three for every 1,000 people.

Exchange Rate Used: INR 1 = US$ 0.0166 as on May 2, 2014

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