According to a report released in August by the Indian Real Estate Industry, the real estate market is all set to reach a market size of $1 trillion by 2030, and will contribute 13 per cent to the GDP by 2025.
The report also predicts the market growth to go up to $9.30 billion (about Rs 65,000 crore) by 2040.
As per the Department of Promotion of Industry and Internal Trade Policy (DPIIT), the real estate sector is also the third largest sector in terms of FDI flow, it is second largest employment generator, and third largest sector to induce economic growth.
The sector that deals with housing, retain, hospitality and commercial is expanding with multi-fold increase in demand and growth in mandate from urban and semi-urban accommodations.
Real estate is ranked third among the 14 major sectors in terms of direct and indirect or induced impact on all the sectors of the economy.
The real estate sector is also the second largest sector in terms of employment generation, only after agriculture. It works in short term employment generation as well as long term.
The question is, what is driving the real estate sector in India so aggressively?
Is it the change in the need and mindset of the society for long term investment or it is that the government has decided to relax norms and policies to attract investment in real estate? The answer should be both.
In July this year, the Securities and Exchange Board of India (SEBI) had lowered the minimum application value of Real Estate Investment Trusts from Rs 50,000 to Rs 10,000–15,000 to make the market accessible to small and retail investors. Even the co-living market in the top 30 cities, primarily metros, is set to grow almost double -- to about $14 billion from the current size of $6.70 billion.
According to another report by Savills India, the real estate demand for data centres is also increasing -- by 15-18 million square feet by 2025.
The Central government has also given impetus to the sector by deciding to build 20 million affordable houses in urban areas across the country by the end of FY 2023. This is being done under Prime Minister Narendra Modi's Pradhan Mantri Awas Yojana (PMAY) scheme under the Ministry of Housing and Urban Affairs.
Going by various reports, Indian real estate sector attracted $5 billion institutional investments in 2020 itself, which is equivalent to 93 per cent of the transactions recorded in the previous year, and even the private equity recorded investments worth $3,240 million across around 20 deals in Q4 of FY 2021.
As per the report from the DPIIT, construction sector is the third largest in terms of FDI inflow. The sector attracted $51.5 billion FDI between April 2020 and June 2021. Moreover, in Q3 of FY 2021, the housing sector stood at 62,800 units, which is an increase by 113 per cent YoY across all the top seven cities, as compared to 29,520 units in Q3 of 2020.
Of the seven cities, Mumbai accounted for 33 per cent of total sales, followed by the National Capital Region at 16 per cent.
According to a JLL Report, between January and March this year, Noida accounted for 55 per cent of net absorption, followed by Gurugram at 38 per cent. Delhi-NCR has also been witnessing sharp increase in demand for office space.
Due to low mortgage rates and incentives extended by the developers, demand for residential real estate revived in Q4 of 2021. Blackstone, which is one of the largest private market investors in India managing about $50 billion of market value in the real estate sector, is looking to invest another $22 billion in the next 10 years.
With all the above, the government initiatives will be the game changer. The 100 smart cities project is a commendable opportunity for the real estate sector. The tax deduction of up to Rs 1.50 lakh on interest on housing loan, and tax holiday for affordable housing projects have been extended until fiscal 2021-22.
Income tax relief measures for real estate developers and home-buyers for primary purchase/sale of residential units of value up to Rs 2 crore from November 12, 2020 to June 30, 2021 have been quite successful.
The government has also set up the Alternate Investment Fund (AIF) that is set to revive around 1,600 stalled housing projects across the top cities in the country. The Union cabinet has approved the setting up of Rs 25,000 crore for the said purpose. The creation of AIF in the National Housing Bank and approval of 425 SEZs are going to further pump up the real estate market.
Finally, SEBI has also given its approval for the Real Estate Investment Trust (REIT) platform, which will allow all kind of investors to invest in the Indian real estate market. This is expected to create an opportunity worth $19.65 billion in the Indian market in the coming years.
Knowing that there is a shortage of 10 million units in the urban areas and further knowing that 25 million units of affordable housing will be required by 2030, who can stop real estate sector to hold a minimum 13 per cent contribution in the GDP of the Indian economy?
(The writer is the Director of M3M India, India's second largest brand in real estate in terms of sales. The views expressed are personal)