Indian real estate sector is projected to reach a market size of $180 billion by 2020, a sharp rise from $126 billion in 2015. The housing sector’s contribution to the Indian GDP is expected to almost double to more than 11% by 2020 up from estimated 5%-6%, showed a joint report by realty developers’ body CREDAI and JLL India. The contribution of the residential segment to the GDP would almost double to 11 % by 2020.
The developments like RERA (Regulation & Development Act) and GST (Goods and Services Tax) have created a strong support for the sector to grow, which coupled with India’s strong economic advancement have provided a perfect spring board . On the basis of the Smart City projects, land record digitization, withdrawal of corporate tax from REIT structure, the real estate sector growth is bound to attract funds and confidence of the investors as well in a big way.
Real Estate (Regulation & Development) Act, 2016 RERA is expected to consolidate the Indian Real estate industry with unscrupulous developers to be shunted out. Smaller developers in tier 2 and 3 cities could tap into institutional funding, if they follow higher disclosure norms and efficient financial management. Sales figures are also projected to improve with RERA bound to rebuild the trust deficit between buyers and developers, the report added.
The cost savings on account of the Goods and Services Tax (GST) is expected to between 3% to 4% in the near future as estimated by development community. Apart from eight major cities, JLL said that cities like Nagpur, Kochi, Chandigarh and Patna could be growth centers.
According to the report, India is expected to see over $20 billion Real Estate Investment Trust able office stock with potential rental yield up to 7.5% make Indian real estate very attractive by 2020. Office REITs may pave the way for retail asset REITs in the second phase.
The future altering trends that will transform the Indian real estate sector:
Real Estate Regulatory Act (RERA) – (Key Findings and Projections)
- RERA is expected to consolidate the Indian Real Estate industry with unscrupulous developers to be shunted out.
- Smaller developers in Tier-II and Tier-III cities could tap into institutional funding, if they follow higher disclosure norms and efficient financial management.
Goods and Services Tax (GST) – (Key Findings and Projections)
- The cost savings on account of GST is expected to between 3-4 per cent in the near future as estimated by development community. Prices will continue to remain dependent on demand and supply dynamics within micro-markets.
- The report identifies select cities (other than the top eight cities) and evaluated their potential to become the next growth centre of logistics post GST Implementation. Some of them include Nagpur, Kochi, Chandigarh, Patna, among others.
FDI Policy – (Key Findings and Projections)
The recent relaxation in the FDI Policy by the Government of India has also provided a huge boost to the industry in the past, with the report revealing the following findings:
- Private equity and debt investments in real estate increased by 12 per cent YOY across 79 transactions in 2017.
- Investments in retail projects in Tier-I and Tier-III cities reached $6.19 billion in the period of 2006-17.
- Investment inflows in the residential sector since 2014 have been Rs 59,000 crore approximately 47 per cent of the total invested money in real estate over the same period.
- Private equity inflows in office and IT-ITES segment for 2014-2017 YTD are 150 per cent higher than the previous seven years’ inflows combined.
Key FDI trends that is likely to dominate the future of Indian realty:
Affordable housing is a major theme among investors. With ample policy support, numerous projects are being launched in this sector and FDI will find its way here.
Warehousing and logistics destinations in the country will also be attractive to foreign investors as post GST the sector is getting more organized.
The office segment is likely to remain active in terms of attracting investments.
- Create avenue for developers to make strong presence in real estate as demand for this segment.
- Being granted infrastructure status, allows developers to borrow capital at preferred rates as well as utilized secured funding routes for growth.
Real Estate Investment Trust (REITs):
- Over 20 billion worth REIT-able office stock in India with potential rental yield up to 7.5 per cent make Indian real estate very attractive.
- Office REITs may pave the way for Retail asset REITs in the second phase. Higher private equity investment interest in alternative assets such as senior living, student housing. Create a long-term strategy to strengthen development portfolios in those asset classes.
Technology and Use of Prop – Tech
- Tech-enablement of the sector is expected to increase efficiency in building construction, sales and marketing management and property management aspects
- Four big technological revolution that will have lasting change include – Big Data Analytics, Artificial Intelligence (AI) and Internet of Things (IOT) and Block Chain
Alternative Asset Classes
- The real estate sector will benefit greatly from specializations that are seeing the dawn now. These are expected to pick pace in the next decade
- High growth asset classes for the next decade will be Senior Living, Student Housing and Healthcare.