Indian Residential Real Estate

The Indian real estate business has come a long way from the Zamindari system to renting office space to professionals for modern, targeted work productivity. India, the world's largest democracy and the world's second-most populous country, has seen a substantial expansion in the real estate industry since attaining independence, notably after the 1990s. By 2024, the real estate market is expected to be worth US$ 7.94 billion (Rs. 65,000 crore). In 2022, the housing demand was strong, particularly from end-users, in India's top seven cities as well as tiers 2 and 3 cities. Low home loan rates and continuously rising homeownership attitudes further aided the growth of residential real estate. With all-time high sales in the top 7 cities, housing sales in 2022 exceeded the previous peak of 2014. Nearly 3.65 lakh units were sold in the top 7 cities in 2022 (as compared to 3.43 lakh units in 2014, the previous high year). More than 60% of the total units launched in the year were by branded developers, who also sold more than 55% of total units during 2022. The real estate industry demonstrated its prowess by posting a 68% year-on-year increase in 2022 and a 19% increase in investment in FY21, clearly emphasising its investment potential in India as well as internationally.

The real estate sector is one of the largest contributors to the Indian GDP and is expected to contribute 18% by 2030 as more categories like as warehouses, logistics, industrial parks, data centres, student housing, co-living, and senior assisted living fuel and usher in an era of boom. The Indian real estate sector is estimated to reach US$ 1 trillion by 2030, with affordable housing playing a crucial part in this growth. The increased public knowledge of the benefits of homeownership, combined with the government's beneficial affordable housing programmes, has resulted in a tremendous expansion in the affordable residential segment.

Real Estate in India

The real estate sector contributes approximately 6-7% to India's GDP, which is expected to increase to 13% by 2025. The Indian real estate business is anticipated to be worth US$ 1 trillion by 2030. The sector's durability is demonstrated by its development trajectory despite the COVID-19 slowdown and geopolitical uncertainty since it remains the second-largest contributor to the Indian economy. The industry is divided into several subsectors, including residential, commercial, office, retail, social infrastructure (schools, hospitals), hospitality, industrial & logistics, and emerging segments including data centres, co-living, and co-working. The industry also indirectly contributes to the economy by producing demand for other sectors such as steel, cement, tiles, furniture, furnishings, electrical equipment and appliances, construction machinery, and so on

Source: Grant Thornton

Despite the unanticipated setback in 2020, the Real Estate sector recovered in 2022, registering notable growth across the residential, retail, and commercial categories. The upward trajectory is anticipated to continue in 2023. The sector saw equity investments of US$ 7.8 billion in 2022, with 60% coming from foreign investors and the remaining 40% from Indian institutional investors and developers.

Residential Real Estate in India

Despite all challenges, India Residential Real Estate reaches new milestones in 2022, with strong yet limited new supply, record-breaking housing sales across the top seven cities, and an all-time low inventory overhang. Despite the nearly normal circumstances following COVID-19, peripheral areas saw the highest levels of homebuyer interest. In 2022, housing prices rose by an average of 4-7%, combined with higher home loan rates, had no effect on residential sales.

Emerging Trends

• New Launch Supply Trend

The Indian residential real estate industry is seeing a boom in new launches as the desire for homeownership remains strong. This is demonstrated by the top 7 cities' new unit launches, which have increased by 18% on a quarterly basis, jumping from 92,900 units in the fourth quarter of 2022 to 1.09 lakh units in the first quarter of 2023. Furthermore, the supply of new launches increased significantly on a yearly basis by 23%. The spike in new residential production can be linked to the unwavering thirst for homeownership, with housing demand continuing to climb unabatedly. As a result, major and publicly traded developers have increased their efforts to accommodate the demand for new residential homes. With the exception of Hyderabad, all six remaining Indian cities had an increase in new launch activity in Q1 2023, both Q-o-Q and Y-o-Y. MMR and Pune emerged as the primary contributors to the new launch activity in the top seven cities, accounting for more than half of the total new supply.

Source: Confederation of Indian Institute (CII) & Anarock 

• Sales Trend

Housing sales have reached an all-time high in the recent decade, surpassing the previous peak of Q1 2022, with around 1.13 lakh units sold in Q1 2023 across the top seven cities. Compared to the approximately 99,500 units sold in Q1 2022, residential sales increased by 14% in Q1 2023. The current quarter saw a 23% rise in residential sales as compared to the previous quarter Q4 2022, which saw 92,200 residential sales. A healthy supply of new residential units combined with tempting launch incentives by developers, as well as an increase in homeownership mood following the pandemic as individuals seek more safe and secure investments, are driving the robust sales velocity throughout the top seven cities. However, headwinds such as the looming global recession, ongoing inflation, and repo rate hikes are likely to have a short-term impact on the property sales market. The top seven Indian cities had significant house sales activity in the current quarter, with NCR, MMR, Bengaluru, Pune, and Hyderabad accounting for 90% of total sales.

Source: Confederation of Indian Institute (CII) & Anarock 

• Available Inventory

By the end of Q1 2023, available inventory in the top seven cities remained at 6.26 lakh units, up from 6.3 lakh units in Q4 2022 and 6.27 lakh units in Q1 2022. The available inventory has decreased by 1% from the fourth quarter of 2022. However, available inventory remained consistent throughout the top seven cities on a yearly basis. MMR topped the list with 32% of the total available housing inventory of over 6.26 lakh units across the top seven cities, followed by NCR, Pune, and Hyderabad at 19%, 17%, and 13%, respectively.

Source: Confederation of Indian Institute (CII) & Anarock 

Government Initiatives

• Real estate (Regulation and Development Act) RERA

  RERA, which stands for Real Estate Regulatory Authority, was established by the Real Estate (Regulation and Development) Act of 2016, with the goal of protecting home buyers while simultaneously stimulating real estate investments. The Rajya Sabha approved the bill for this Parliament of India Act on March 10, 2016. The RERA Act became effective on May 1 and afterwards. Only 52 out of 92 sections were notified at the time. On May 1, 2017, all other provisions came into force. With the implementation of RERA, the mainly unorganised real estate sector was brought within the purview of the regulator, making the developer/builder/promoter/agents accountable and answerable, hence bringing transparency. This has increased confidence amongst the customers and investors. Presently, over 1 lakh disputes closed in the last five years providing relief to home buyers, 21% CAGR growth in agent registration from 2019 to 2023, 56% of total projects registered during 2019-22, boosted home sales, improved financial position, and reduced dependence on institutional finance, increased focus on mid as well as premium segments, etc.

• Smart Cities Mission

  The goal of the smart cities mission is to promote cities that provide core infrastructure and give their citizens a decent quality of life, as well as a clean and sustainable environment, through the application of 'Smart' solutions, which necessitates the adoption of technology to deliver energy-efficient and sustainability-focused solutions. On June 25, 2015, the Prime Minister launched the Smart Cities Mission. The Mission's goal is to generate economic growth and improve the quality of life in the city by focusing on the city's social, economic, physical, and institutional pillars. The emphasis is on inclusive and sustainable development through the establishment of replicable models that serve as lighthouses for other aspiring cities. A two-stage competition resulted in the selection of 100 cities to be developed as Smart cities. A total of 8.020 projects have been approved with a financial outlay of US$ 21.90 billion (Rs. 1,79,186 crore).

• Real Estate Investment Trusts (REITs)

  SEBI introduced REITs as an investment mechanism in 2014 to generate funds from investors to acquire, hold, and operate revenue-generating real estate assets directly or through special purpose organisations. REITs are publicly traded, highly regulated, and deliver consistent returns to investors. The creation of REITs allowed developers to monetize revenue-generating real estate assets and use the proceeds to support the development of additional assets. Between the second half of 2021 and early 2025, at least four new Real Estate Investment Trusts (REITs) will be listed on the Indian stock exchange. The 4 REITs are Embassy Office Parks REIT, Mindspace Business Parks REIT, Brookfield India Real Estate Trust and Nexus Select Trust.

• Pradhan Mantri Awas Yojana (PMAY)

  This effort seeks to provide "housing for all". It is a Credit Linked Subsidy Scheme (CLSS), which implies that PMAY scheme users are eligible for interest subsidies if they want a loan to buy or build a new house. The government has designated 'affordable housing' as infrastructure, allowing developers to raise cash, including external commercial borrowings. The interest subvention granted by the PMAY has raised the demand for affordable housing. It was launched on June 1st, 2015, to promote and encourage sustainable and affordable housing for the urban poor. There are 2 types of PMAY Schemes based on the area:

  • Pradhan Mantri Awas Yojana Gramin (PMAY-G)

  It was launched to aid families categorised as Economically Weaker Sections (EWS) and Lower Income Groups to help them avail affordable financing for their homes. Almost 2.92 crore houses have been sanctioned, out of which 2.32 crore houses have been completed.

  • Pradhan Mantri Awas Yojana Urban (PMAY-U)

  It included around 4,300 cities and towns across India. 118.9 lakh houses have been sanctioned, out of which 75.51 lakh houses have been completed.

• Monetisation of non-core real estate

  The National Land Monetisation Corporation was established by the government in 2022 to monetize non-core real estate assets owned by public sector enterprises (PSEs).

Road Ahead

India is one of the world's fastest-growing major economies, and the real estate business contributes to overall economic growth while also serving as the country's second-largest employment and third-largest recipient of FDI. Residential demand is expected to remain high in the first quarter of 2023. Many real estate professionals are already employing automated solutions to manage their responsibilities, as the business has been rapidly growing its acceptance of technology. Virtual tours, 3D property models, AI, and blockchain technologies have also grown in popularity in recent years. Virtual tours that use AR and VR have provided clients with an interactive virtual tour experience, while AI has assisted agents and brokers in better predicting the future rent and value of a property in a specific market. Furthermore, digitalization initiatives in India, such as the Digital India Land Records Modernisation Programme and the National Generic Document Registration System, have contributed to a reduction in land disputes and increased transparency in land-related transactions. Overall, technology has made substantial advancements in the real estate market, allowing businesses to remain competitive and give better experiences to their clients.