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Real estate sector to cross US $1 trillion by 2030

IBEF, Knowledge Centre

Jul 07, 2021 15:25

In India, the real estate sector is the second-highest employment generator after the agriculture sector. In 2021, the sector was responsible for employing >5.5 crore people, garnering a total of 11% of all employment opportunities in the country. The sector showcased quick recovery in the COVID-era and is projected to grow significantly in the coming decade. Moreover, real estate jobs are expected to increase by >30% with >1.7 crore additional job opportunities by 2025.

The sector is also a substantial contributor to the national gross domestic product (GDP). As of 2021, the sector’s contribution to the total GDP was valued at Rs. 1,483,745 crore (US $200 billion), which was equivalent to a 7% contribution share in the country’s overall GDP. Following this, experts estimated that the sector is on track to rise to Rs. 7,418,728 crore (US $1 trillion) by 2030 and its contribution to the national GDP will increase to 10% in the same time frame.

Growth Drivers
While there are several parameters and trends boosting the real estate sector, the current growth is due to a sharp increase in public and private investments, along with introduction of favourable policy framework.

Public Investments
For the last seven years, the Indian government has taken several measures to spur growth in the real estate sector. Under the Union Budget for FY22, the government granted tax deductions of up to Rs. 1.5 lakh (US$ 2,022) on interest for housing loans. In addition, the government extended the tax holiday for affordable housing projects until the end of FY2021–22.

Private Investments
Private investments in the real estate sector have surged in the recent times, owing largely to an increase in transparency and high rates of return on investment. The sector attracted institutional investments worth Rs. 3,709.4 crore (US $5 billion) in 2020. Of this, the office segment attracted the highest share with 40%, followed by the residential segment with 37% share.

Policy Framework
To boost urbanisation and investments, the government has allowed FDIs of up to 100% for all townships & settlement development projects and relaxed the minimum capitalisation requirements for FDI investments from Rs. 7.4 crore (US $10 million) to Rs. 3.7 crore (US $5 million). Both these measures are expected to stimulate FDI investments over the next five years, with India expected to attract capital infusion of ~Rs. 59,350 crore (US $8 billion) by FY25.

Under the Pradhan Mantri Awas Yojana (PMAY) scheme, the Union Ministry of Housing and Urban Affairs launched the ‘Housing for All’ initiative to build 20 million houses by 2022. In addition, this initiative also marked the relaxation of the goods and service tax rate to 5% for the residential sector. This move is expected to boost residential developments in the country, especially in the Tier-I and Tier-II cities; therefore, is likely to spur the demand for commercial developments and retail office spaces. Moreover, the government is evaluating proposals to create/develop ‘Special Residential Zones’ along the lines of ‘Special Economic Zones’ due to a significant push from lobbyists, realtors, property consultants and other industry players.

Prior to the PMAY scheme, the Real Estate Regulation and Development (RERA) Act, which was implemented in 2016, helped transform this sector and introduced to provide relief to property buyers from malpractices of unfair builders. The act further aided to improve the overall transparency in transactions within the real estate economy.

In 2019, India's ranking improved by one point to rank #34 in the Global Real Estate Transparency Index. This upward movement was a product of the RERA act, other regulatory reforms, better market data and green initiatives; also caused the government to focus on strengthening information channels and increasing transparency in the real estate sector. The Index emphasised the need for robust digital platforms for efficient and transparent real estate buying and selling processes. It envisions smart data collection and data analytics to generate a housing price index on this platform. The main objective of the index is to prove market insights to property buyers, sellers and policymakers. To enable this, the government enlisted Confederation of Real Estate Developer’s Associations of India (CREDAI) and National Real Estate Development Council (NAREDCO) to develop the technological framework.

Owing to several growth drivers in the real estate sector, there are numerous opportunities emerging for players interested in entering this space. Maximum growth is expected in specialised niche segments within this sector.

Senior citizen housing is one such niche segment with enormous growth potential. Due to emergence of nuclear families and growing urbanisation, the no. of townships—that have been designed to cater to needs of the elderly—have increased. This segment is projected to reach a market value of Rs. 5,712.4 crore (US $7.7 billion) by 2030.

As work from home has become the new normal in the post COVID-era, many companies are transitioning to smaller workspaces. This transition is helping revive the real estate economy that had stagnated/showcased stunted growth in 2020. Also, companies are investing in flexible workspace options, specially in Tier-II and Tier-III cities that have small clusters of employees working remotely. According to a report by CBRE, India’s flexible space stock stood at 36 million sq. ft. in 2020 and is estimated to increase by 15% YoY until 2023.

The global pandemic has shed a spotlight on the state of healthcare infrastructure in our country. India needs to add >2 million hospital beds to meet the global average of 2.6 beds for every 1,000 people. The healthcare segment is likely to augment to >Rs. 275,977 crore (US $372 billion) in the coming decade to meet the medical needs of its growing population.

Future Outlook
In conclusion, the real estate sector has shown flexibility amid the covid-induced recession with a strong K-shaped recovery in 2021. It is on a strong growth trajectory towards harnessing its potential of Rs. 7,418,728 crore (US $1 trillion) by 2030.