Investment Outlook , Published Feb 18, 2020
India’s real estate sector will have market size of US $1 trillion by 2030. Major regulatory reforms have helped sector gain more transparency and credibility. Inspite the current pain, this is building a healthy ecosystem and financial discipline creating a strong pillar for India’s growth.
Union Budget 2019-20 laid the blueprint for the future of India’s economy outlining the vision to make India a US $5 trillion economy by FY 2024-25, perhaps better than many advanced economies of the world today. For India to achieve this mammoth target, development of real estate sector and its systematic growth is imperative. Across developing and developed economies, real estate development is an important parameter to measure economic growth.
As a key driver of economic growth, the Indian real estate sector has become increasingly organised and transparent, thereby offering a more secure investment environment. It is a growth engine which can certainly help propel the Indian economy into the top league of global economies. Here’s how real estate could contribute to India’s economic growth in the coming years.
Realty’s contribution to GDP Expected to Double
Despite global headwinds and slow economic growth at home, the real estate sector in India is poised for future growth. According to India Brand Equity Foundation, India’s real estate sector is expected to grow to a market size of US $1 trillion by 2030. It is also likely to contribute 14 per cent of the country’s GDP by 2025 which is almost double its current contribution. Over the years, the growth in real estate and housing in particular has been crucial in driving the Indian economy. On the back of regulatory reforms such as RERA, GST and IBC and relaxation in foreign direct investment, the sector has gained more transparency and credibility and witnessed heightened demand from end users. To keep this momentum going and underline growth of the Indian economy, the government must continue making radical changes in the taxation system and regulatory policies.
Infrastructure Creation Driving Growth
Real estate development goes hand-in-hand with infrastructure development, which is opening up peripheral areas and creating new avenues of growth. The government’s continued focus on infrastructure ramp-up will lead to unlocking of more urban land for development. The budget 2019-20 allocated INR 100 lakh crores for infrastructure investments over the next five years to improve transport efficiency. At the same time, good infrastructure will clear many bottlenecks, ease business and have a positive ripple effect on the economy. Multi-modal infrastructure development including road, rail and metro leads is expected to ease of living conditions and spur demand of various real estate assets including residential, commercial, retail and warehousing.
Supporting Job Creation
After agriculture and manufacturing, it is the real estate sector that has the potential to support large-scale job creation. Associated with over 200 allied industries including cement, steel and sand, real estate’s growth will have a multiplier effect on several allied sectors. Moreover, growth in the sector would lead to more job creation. According to the National Skill Development Council, there is a requirement of 109.73 million skilled manpower by 2022 in 24 key sectors and the building, construction and real estate sector is expected to generate 76.55 million jobs by 2022. Moreover, mega government initiatives such as ‘Housing for All by 2022’, are likely to bode well not just for the real estate sector but also for overall economic development. In the second phase of PMAY-G, during 2019-20 to 2021-22, 1.95 crore houses were expected to be provided to eligible beneficiaries. This will not only aid to address the issue of housing shortage but also create large-scale employment for skilled and unskilled labourers.
Attracting Global Investments
Major reforms such as GST, RERA, Insolvency and Bankruptcy Code and Benami Property Transaction Act have had a lasting impact on the real estate sector. Despite the initial churning and pain, they have led to more financial discipline and a healthier ecosystem. While instilling confidence in home buyers and domestic investors, these landmark reforms have improved the perception for India as a global hub for investments. The sector has witnessed major foreign investments across segments such as residential, commercial and retail. As per ANAROCK data, private equity investments in India’s real estate sector crossed over US $5 billion in 2019, of which commercial segment comprised the lion’s share at over US $3.3 billion, followed by retail sector with US $970 million and residential of US $395 million. Foreign private equity funds continued to dominate the real estate with players like Blackstone, Hines, Ascendas, Brookefield making major investments.
Real Estate Leading the Way
As the second largest employer and a major contributor to the country’s GDP of almost 8 percent, the real estate industry is one of the strong pillars of the Indian economy. The revival of real estate is essential for the economy to move past its current slow phase and thus achieve the mammoth target. Going forward, continued government support by way of policies and tax sops is needed to give the sector a boost. This will also have a multiplier effect on other sectors and ancillary industries that are closely associated with real estate and provide employment to millions while enhancing GDP growth.
About Anuj Puri
Anuj Puri is the Chairman & Founder of ANAROCK. He has over 30 years’ experience in Indian and global real estate markets and is a trusted advisor to developers, occupiers and investors. Anuj is widely acknowledged for revolutionizing the real estate sector with his visionary outlook and technology-based solutions.
Investment Outlook 2020