Real estate and construction market forecast in India

Introduction

The Real estate and construction sector is one of the most well-known on a global scale. It is divided into four sectors: housing, retail, hospitality, and commercial. This sector’s expansion is well supported by the expansion of the corporate environment and the demand for office space, as well as urban and semi-urban accommodations. In terms of direct, indirect, and induced effects in all sectors of the economy, the construction industry ranks third among the 14 major sectors.

This sector is also expected to attract more non-resident Indian (NRI) investment, both in the short and long term. However, Bengaluru is expected to be the most popular property investment destination for non-resident Indians, followed by Ahmedabad, Pune, Chennai, Goa, Delhi, and Dehradun.

Market Size

The Real estate and construction market in India will grow to Rs. 65,000 crore (US$ 9.30 billion) by 2040, up from Rs. 12,000 crore (US$ 1.72 billion) in 2019. However, The Real estate and construction sector is expected to grow to a market size of US$ 1 trillion by 2030, up from US$ 120 billion in 2017, and to contribute 13% of the country’s GDP by 2025. Retail, hospitality, and commercial real estate are also expanding rapidly, supplying much-needed infrastructure for India’s expanding needs.

There will be 22.2 msf (million square feet) of office space transferred in 2020, while 17.2 msf will be completed. In terms of sectoral occupier share, the Information Technology (IT/ITeS) sector led with 41% in the second half of 2020, followed by the BSFI and Manufacturing sectors with 16% each, and Other Services and Co-working sectors with 17% and 10%, respectively.

However, In 2020, the manufacturing sector accounted for 24% of office space leasing, accounting for 5.7 million square feet. In addition, A large number of small and medium businesses (SMEs), auto leasing, and electronic component manufacturers leased between Pune, Chennai, and Delhi. Therefore, The 3PL, e-commerce, and retail segments accounted for 34%, 26%, and 9% of office space leases, respectively.

Private equity (PE) investments in retail real estate and warehouses will total US$ 220 million each in 2020. Similarly, Demand for Grade-A office space in Delhi-NCR likely to surpass 700 MSF by 2022.

In the second half of 2020, housing launches totalled 86,139 units across the top eight Indian cities. From October 2020 to December 2020, home sales volume in India’s eight major cities increased by twofold to 61,593 units, up from 33,403 units in the previous quarter, indicating a healthy recovery following the strict lockdown imposed in the second quarter due to the spread of COVID-19 in the country.

In general, three houses are built per 1,000 people per year, while five houses per 1,000 people are needed. However, The current urban housing shortage estimated to be 10 million units. Similarly, To meet the country’s urban population growth, an additional 25 million units of affordable housing needed by 2030.

Investments/Developments

Increasing demand in the real estate and construction sector has led to rapid growth in India’s real estate sector. However, In 2020, institutional investors plan to invest $5 billion in Indian real estate, accounting for 93 percent of transactions. Also Private equity (PE) and venture capital (VC) funds invested a total of $4.06 billion in 2020.

SEZ exports amounted Rs. 7.96 lakh crore (US$ 113.0 billion) in FY20, a 13.6 percent increase from Rs. 7.1 lakh crore (US$ 100.3 billion) in FY19.

DPIIT (Department for Promotion of Industry and Internal Trade Policy) ranked FDI in construction third. From April 2000 to September 2020, FDI in the sector (including development and construction) totaled US$ 42.97 billion.

Some of the major investments and developments in this sector are as follows:

In November 2020, Accor, a leading hospitality group, to launch seven new properties in India by 2022.
In November 2020, Prestige Estates Projects Ltd. sold a large portfolio of office, retail and hotel properties to Blackstone for Rs. 12,745 crore (US$ 1.7 billion).
In November 2020, Taj Group partnered with real estate company Ambuja Neotia Group to launch three new hotels—two in Kolkata and one in Patna.
The Godrej Group has forayed into the financial services industry with Godrej Housing Finance (GHF) through which it hopes to build a long-term and sustainable retail financial services business in India, aiming for a balance sheet of Rs. 10,000 crore (US$ 1.35 billion) in the next three years.
In October 2020, Brookfield Asset Management made a massive investments in India through a US$ 2 billion real estate deal. Brookfield will buy 12.5 million square feet of commercial real estate assets from privately held developer RMZ Corp. The purchase includes rent-yielding office space and commercial co-working space.
In October 2020, Rajasthan-based realty developer, Bhumika Group, announced its plans to invest Rs. 450 crore (US$ 60.81 million) in two residential and one retail project in Udaipur, Alwar and Jaipur, respectively.
In October 2020, Australia’s REA Group Ltd. announced its agreement to acquire a controlling interest in Elara Technologies Pte. Ltd, the owner of Housing.com, PropTiger.com and Makaan.com.
In September 2020, RMZ Corp. sold 12.8 million square feet real estate assets to a fund managed by the Brookﬁeld Asset Management for Rs. 15,000 (US$ 2 billion).
According to the property consultant, Anarock, India is likely to have 100 new malls by 2022. The top seven metropolises will get 69 malls while Tier two and three metropolises will get 31 malls.
TCS and DLF received approval by the Government in March 2020 to set up IT SEZs in Haryana and Uttar Pradesh.
Blackstone crossed US$ 12 billion investment milestone in India.
Puravankara Ltd, a realty firm, plans to invest around Rs. 850 crore (US$ 121.6 million) over the next four years to develop three ultra-luxury residential projects in Bengaluru, Chennai and Mumbai.
First REIT, which raised Rs. 4,750 crore (US$ 679.64 million), announced in early 2019 by global investment firm Blackstone and realty firm Embassy group.
In January 2020, RMZ Corp entered into a strategic and equal partnership with Mitsui Fudosan (Asia) Pte Ltd to expand its business footprint.

Government Initiatives

The government of India has launched several initiatives to promote the Real Estate and Construction industry. The Smart City Project, which aims to build 100 smart cities, represents an excellent opportunity for real estate companies. Some of the other major government initiatives include below:

Under Union Budget 2021-22, tax deduction up to Rs. 1.5 lakh (US$ 2069.89) on interest on housing loan, and tax holiday for affordable housing projects continues until the end of fiscal 2021-22.
The Atmanirbhar Bharat 3.0 package announced by Finance Minister Mrs. Nirmala Sitharaman in November 2020 included income tax relief measures for real estate developers and homebuyers for primary purchase/sale of residential units of value (up to Rs. 2 crore (US$ 271,450.60) from November 12, 2020 to June 30, 2021).
In October 2020, the Ministry of Housing and Urban Affairs (MoHUA) launched an affordable rental housing complex portal.
Jammu & Kashmir will become subject to the Real Estate (Regulation & Development) Act, 2016, once it becomes effective on October 27, 2020. Moreover, non-agricultural properties could only be bought by local residents.
Most importantly to revive around 1,600 stalled housing projects across top cities in the country, the Union Cabinet has approved the setting up of Rs. 25,000 crore (US$ 3.58 billion) alternative investment fund (AIF).
Government has created an Affordable Housing Fund (AHF) in the National Housing Bank (NHB) with an initial corpus of Rs. 10,000 crore (US$ 1.43 billion) using priority sector lending short fall of banks/financial institutions for micro financing of the HFCs.
As of January 31, 2021, India formally approved 425 SEZs, of which 265 were already operational. Most special economic zones (SEZs) are in the IT/ BPM sector.

Road Ahead

The Securities and Exchange Board of India (SEBI) has approved the Real Estate Investment Trust (REIT) platform, allowing all types of investors to invest in the Indian real estate market. Similarly, In the coming years, it would create a Rs. 1.25 trillion (US$ 19.65 billion) opportunity in the Indian market. As a result, consumers become more informed and globalization dominates, Indian real estate developers are shifting gears.

The most noticeable change has been the transition from family-owned to professionally managed businesses. However, In order to meet the growing demand for managing multiple projects across cities, real estate developers are investing in centralized processes for sourcing materials and organizing labor, as well as hiring qualified professionals in areas such as project management, architecture, and engineering.

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Therefore residential sector in Real estate and construction is expected to grow significantly, with the central government aiming to build 20 million affordable houses in urban areas across the country by 2022 under the Union Ministry of Housing and Urban Affairs’ ambitious Pradhan Mantri Awas Yojana (PMAY) scheme. However, There will be an increase in demand for commercial and retail office space as housing units increase in urban areas.

In addition, The current urban housing shortage estimated to be 10 million units. However, To meet the country’s growing urban population, an additional 25 million units of affordable housing in are need by 2030.

Similarly, Increased transparency encouraged by the increasing flow of FDI into the Real estate and construction sector. Therefore, To attract funding, developers have revamped their accounting and management systems to meet due diligence standards. By FY22, Indian real estate will attract US$ 8 billion in FDI, a significant amount of foreign investment.