Due to rising middle class and young population, growing income levels and rapid urbanization, the Indian real estate sector has witnessed significant growth over the past few years. Real estate is the second leading sector after agriculture and it is accepted to grow by 30 per cent over the next decade. The real estate segment includes four sub sectors namely, housing, retail, hospitality, and commercial. The growth of this sector is well integrated by the growth of the commercial environment and the demand for office space as well as urban and semi urban accommodations. The construction industry comes third among the 14 major areas in terms of providing direct or indirect employment in our economy.
It is also expected that this sector will attract more non-resident Indian investments, both in the short term and long term. The most preferred property investment destinations for NRIs today are Bengaluru, followed by Ahmedabad, Pune, Chennai, Goa, Delhi, and Dehradun.
Second Leading Sector of India
According to Housing market research, the Indian real estate market is estimated to touch US$ 180 billion by 2020. This sector alone contributes 5 to 6 per cent of the country’s Gross Domestic Product. It is also estimated that in near future, the market size of this sector is expected to upsurge and the Compound Annual Growth Rate is expected to be 11.2 %. Retail, hospitality and commercial real estate are also growing exponentially, providing the most required infrastructure for Indians economic growth.
This real estate market in India is expected to attract investments worth US$ 7 billion in 2017, which will increase further to US$ 10 billion by 2020. India has been ranked fourth among other developing Asian countries for FDI inflows as per the World Investment Report 2016 by the United Nations Conference on Trade and Development. According to Department of Industrial Policy data, the construction development sector in India has received Foreign Direct Investment equity inflows to the tune of US$ 24.29 billion in the period April 2000-March 2017.
In India, the best city for commercial real estate investment with returns expected to be from 12 to 19 percent is Mumbai. It is feasible in the next five years, which will be followed by Bengaluru and Delhi National Capital region.
Government Initiatives for the real estate project
The Government of India and the other state governments have taken some initiatives to boost the development of real estate sector. Government introduced the smart city project where they have the master plan to build 100 smart cities. This initiative is the prime opportunity for real estate companies to make profit through this industry.
Approximately, 89 out of 95 villages in Delhi are declared as urban areas by the Delhi government. It will ease the operationalizing of the land pooling policy, thereby giving a boost to affordable housing in Delhi.
Government banks are also taking initiative to make this Real estate sector more investment friendly. For the development purpose, Banks are allowing the Real Estate Investment Trust and Infrastructure investment Trust for the sector growth. This will benefit both real estate and banking sector in diversifying investor base and investment avenues respectively.
According to the Pradhan Mantri Awas Yojna Scheme, Housing Ministry Sector and Urban Poverty Mitigation has started construction of 84,460 more houses for urban poor for five states, namely West Bengal, Jharkhand, Punjab, Kerala and Manipur. Indian government is now ready to invest Rs 3,073 crore towards this scheme.
The Real Estate Investment Trust
Over the recent decade, many savvy investors have made profits in the Real Estate Sector in India. The outline of the real estate investment trust is opening up a beneficial way where they will allow all kinds of investors, even those with smaller budgets to make safe and gratifying investments into the Indian real estate market. The premium benefit of REIT is that here, shareholders can start with as small a sum as Rs. 2 lakh to secure units in exchange.
The Securities and Exchange Board of India and Mutual Funds industry has already accepted the REIT platform for providing opportunities to the retail investors to invest in this rising sector and diversify their assets. It will collect the money from all investors across the country. The money composed of the REIT funds will subsequently be invested in marketable properties to generate revenue.
The New Housing Act
Home buyers have been complaining since long that the real estate transactions were one-sided and heavily in the favor of the seller. The main objective of Real Estate Regulatory Act program is to maintain an impartial and fair transaction between the vendor and the consumer of the properties. Customers can hope this present act will make real estate purchase simpler through better accountability and transparency, provided that the states do not dilute the provisions and the spirit of the central act.
The growing flow of FDI into Indian real estate is motivating amplified transparency. Developers, in order to attract funding, have renovated their accounting and management systems to meet due diligent standards.
Quality housing and level of urbanization reflects a nation’s economic growth and social well-being. Recently, Government took initiatives including GST and demonetization that is likely to boost real estate growth in the country, particularly in the housing segment. Against the backdrop of improving economic growth and historical low lending rate, it is imperative that the Reserve Bank would work with various commercial banks to ensure that the full impact of monetary easing is passed on to the consumer. In addition, the central Government, along with all the state Governments should take steps to ease regulatory, infrastructural and policy-related bottlenecks that are currently stifling the revival of the real estate sector in India.
Overall there is an environment of optimism in Indian economy about real estate sector and it is expected to do extremely well in the near future.