Introduction
In 2021, the global real estate sector market size was 3.69 trillion US dollars and was calculated to expand at a 5.2% CAGR between 2022-2030. The real estate sector witnessed tremendous growth in residential and commercial space, which is considered the most important area of real estate.
With continuous increases in population, metropolitan areas, and commercial activity, the Indian real estate industry is booming on a large scale. In India, it has been seen that investment in real estate is booming in the long and short term. The Indian real estate industry is categorized by property type, e.g., housing, office, retail, hospitality, and industrial.
The real estate industry in India was the most affected market during the COVID-19 pandemic. In the last two years, many sites were closed while under construction, and many projects never got finished.
However, after the pandemic, the real estate sector of India flourished and is growing at a staggering pace with cities like Bengaluru, Ahmedabad and Chennai being a top shelter spot of investors.
The Real Estate Market in India
The Indian real estate market is rebuilding after the pandemic. The domestic real estate market contributes 50% of the total GDP in India and is expected to reach $1 trillion by 2030.
With the government’s initiatives and the recent replacement of the SEZs Act, there has been tremendous growth in the real estate market in the SEZ sector for commercial and office space. According to Savills India, the real estate demand for data centers is expected to increase by 15–18 million square feet by 2025.
Investment in SEZs is considered fruitful for investors, as government initiatives have helped them plenty with land and attracted foreign investment. In major cities, SEZ land has been used for affordable housing, generating employment. As of September 2022, there are 5,634 approved SEZ units in India, and more than 2 million people work in SEZs across India. The top seven cities have completed 5.6 lakh housing units in 2023.
The last few years have also welcomed a new vertical of real estate investments as — REITs. The concept of a real estate investment trust (REIT) has expanded to a great extent. The notion of a real estate investment trust came into existence in 2007. A real estate investment trust manages and owns real estate to generate income. A group of people collect funds and entrust to a single agent or estate expert to invest on their behalf. The income generated from the assets under REITs is later disbursed between the investors as dividends.
The main advantage of a REITs is that one can have a share of the investment in the costliest property. Only an agent or real estate company will manage everything; investors do not have to look out for anything.
According to data from JLL, the REITs listed assets worth over $61 billion across the top 7 cities. According to ICRA, Indian firms are expected to raise more than 3.5 trillion rupees through infrastructure and real estate investment trusts.
Indian Housing Market in Real Estate
The demand for Indian housing has burgeoned in recent years. Factors like an increase in population, migration from rural to urban areas, and property investment trends gave a thrust to real estate in developing Indian housing. The housing market set a new record sales of 68% yearly growth.
India’s population will be expected to reach 1.5 billion by 2023, and seeing the current and future situation, the need for shelter will increase. To cope with the increased demand, builders started construction as housing market sales increased by an extreme 48% in FY23.
Government initiatives towards the housing scheme have helped people a lot, as a home loan has made it smooth for people to purchase affordable housing in India. Today, a home loan starts at 6.85% p.a. with affordable EMIs and long-term duration.
To provide shelter and affordable housing to each person in India, the Government Initiative Pradhan Mantri Awas Yojna came into existence. Under the PMAY scheme, the government constructs affordable housing and sells it at shy rates compared to market rates.
However, it has appeared that India has become the land of investment destinations for many countries. Foreign investors purchase land such as for industrial, commercial, or Indian housing.
NRIs are keeping an eye on real estate in India with government support. RBI and SEBI have accepted FDI with open hands. In FY2021, it had estimated that NRI investment in India would reach a record high of INR 96 crore.
It has appeared that NRIs invest in luxury Indian housing and later rent it out. In FY2022, NRI investment reached USD 14.9 billion. Out of USD 14.9 billion, USD 13.1 billion is invested in the residential sector in Mumbai. It indicates NRIs’ attraction towards investment in Indian housing. It is estimated that in 2023 NRI investment in Mumbai’s residential sector will increase by around 12%.
Reasons for the Boom in Indian Housing
1. Strong Economic growth
India’s average economic growth is recorded at 7%, with an increase in economic growth, lifestyle and living standards of people also getting updated and led to demand for better housing.
2. Urbanization
People are migrating from rural to urban and this led to the increase in housing demand. With a rise in urbanization, the demand for housing is also getting fulfilled as people will get the option of ready to shift houses or they can book under-construction property.
3. Infrastructure
Infrastructure has played a key role in the demand for Indian Housing. High-quality infrastructure attracts people to buy or invest in Indian Housing and the concept of move-in houses or ready-to-shift has made it a lot easier for people to shift to high-class infrastructure buildings.
4. Interest Rates
The government has stable interest rates on home loans and commercial loans, which help investors purchase any property on loan. The ratio of renting property has decreased in recent years as people believe in buying a new property.
5. Demographics
India’s demographics have a positive influence on the housing market. Housing has become a primary focus for the young individuals seeking for an upgrade in their lifestyle and standard of living.
But as they say — all that glitters is not gold. The housing boom is a single face of a coin. The real estate industry still calls for a high capital to get involved in and also has liquidity issues. Stocks, precisely stand as a better option given their ability and nature to cater for these problems of high capital and liquidity.
Conclusion
In 2023, it is anticipated that the price of the Indian real estate industry will increase. A prime increase can be witnessed in the affordable housing or residential sector with the help of the government in increasing the Floor Space Index as the Maharashtra govt. did in 2018.
However, in recent years the sales of luxury properties showed a downward trend, while sales of affordable houses increased, even sales of under-construction properties also slowed down due to the COVID-19 pandemic’s effect on the economy.
We can conclude that the Indian real estate sector in 2023 will be lucrative. The Indian real estate sector has seen tremendous growth in commercial buildings and Indian housing. Whether it is for investment or use, the return on property in the long term is worth every penny.
