Real Estate forecast next FIVE years in India

In India, the real estate sector is the second-highest employment generator, after the agriculture sector. The real estate sector in India is planning to reach US$ 1 trillion by 2030. By 2025, it will contribute 13% to the country’s GD.

The emergence of nuclear households, rapid urbanisation and rising household income is likely to remain the essential drivers for the increase in all spheres of real estate, including residential, commercial, and retail.

Accelerated urbanisation in the country is pushing the evolution of real estate. More than seventy per cent of metropolitan areas will contribute seventy-five per cent of India’s GDP by 2020. According to India Ratings and Research (Ind-Ra), the Indian real estate sector may stage a keen K-shaped recovery in FY22. However, the overall sales in FY22 could still be fourteen per cent below the FY20 levels.

As per ICRA estimates, Indian firms expect to raise more than Rs. 3.5 trillion (US$ 48 billion) through infrastructure and real estate investment trusts in 2022, as contrasted with raised funds worth US$ 29 billion to date.

India’s Global Real Estate Transparency Index ranking improved by a notch to 34 in 2019 on the back of regulatory reforms, better market data and green initiatives, according to property consultant JLL.

According to Savills India, real estate demand for data centres are presuming to increase by 15-18 million sq. ft. by 2025. Institutional investments in the Indian real estate sector were anticipated to increase by 4% to reach Rs. 36,500 crore (US$ 5 billion) in 2021, driven by the rising interest of investors towards capturing attractive valuations amid the pandemic. Private equity investments in Indian real estate reached US$ 2.9 billion in the first half of 2021, which was more than two times of increase from the first half in 2020.

The office market in the top eight cities marked 22.2 MSF from July 2020 to December 2020, whereas new completions recorded 17.2 MSF in the same period. In terms of share of sectoral occupiers, Information Technology (IT/ITeS) sector governed with a 41% share in the following half of 2020, followed by BSFI and Manufacturing sectors with 16% each, while Other Services and Co-working sectors recorded 17% and 10%, respectively. The office space leasing activity picked up in 2021 and is likely to be at par with the 10-year average, i.e., 30-31 million sq. ft.

In Q4 FY21, the office segment drew 71% share of the total PE investments in real estate, followed by retail at 15% and residential and warehousing with 7% each. Between January 2021 and June 2021, office absorption in six chief cities stood at 10.9 million sq. ft., which dipped by 38% from the corresponding months in 2020. According to JLL India, in the second quarter of 2021, India’s net office conversion reached 4.39 million sq. ft., up 32% YoY, in key cities.

The Government of India has been supportive of the real estate sector. In August 2015, the Union Cabinet allowed 100 Smart City Projects in India. The Government has also proposed FDI (Foreign Direct Investment) for townships and settlements developing projects to 100%.

Real estate projects within Special Economic Zones (SEZ) are also permitted 100% FDI. Architecture is the third-largest sector in terms of FDI inflow. FDI in the industry (including construction development & activities) stood at US$ 50.8 billion between April 2000 and March 2021. Exports from SEZs reached Rs. 7.96 lakh crore (US$ 113.0 billion) in FY20 and grew 13.6% from Rs. 7.1 lakh crore (US$ 100.3 billion) in FY19.

Indian real estate is expecting to attract a substantial amount of FDI in the next two years with a US$ 8 billion capital infusion by FY22. As of June 30, 2021, India formally approved 427 SEZs.

The Government has also issued draft guidelines for financing by Real Estate Investment Trusts (REITs) in the non-residential section. The Ministry of Housing and Urban Affairs has recommended all the states consider lessening the stamp duty of property deals to push real estate activity, create more revenue, and assist economic growth.

In July 2021, India’s Securities and Exchange Board lowered the minimum application value for Real Estate Investment Trusts from Rs. 50,000 to Rs. 10,000-15,000 to make the market more convenient to trim and retail investors.

References: Media Reports, Press releases, Knight Frank India, VCCEdge, JLL Research, CREDAI-JL, Union Budget 2021-22
Note: Conversion rate used in September 2021, Rs. 1 = US$ 0.014

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