8 OCT 2018
The Indian real estate industry is changing, and new trends are set to emerge due to the rapid urbanisation taking place in India’s major cities. In the last decade or so, the country’s urban population in medium-to-large cities has grown to 410 million people, and this figure is expected to reach 814 million by 2050, according to a survey by the World Economic Forum.
One of the main factors driving the migration of people from rural to urban areas is the prospect of better employment opportunities and the promise of a better life in cities. This has led to almost 70% of India’s urban population being concentrated in 6% of its cities and towns. This puts tremendous pressure on infrastructure assets, public services and housing in these cities.
There is an urgent need to create new cities with good infrastructure. If this severe pressure is not alleviated, cities will continue to deteriorate; this was all too evident from the collapse of infrastructure in cities during the monsoons.
Cities are an engine of growth and development in India, they contribute to almost 70% of gross domestic product (GDP). New cities with good infrastructure will attract industries that can create employment opportunities and take the pressure off existing, overburdened cities. This will lead to substantial growth in the real estate industry. A 2010 report by McKinsey Global Institute, India’s Urban Awakening: Building inclusive cities, sustaining economic growth, projected that 700–900 million square meters of space, the size of the city of Chicago, will have to be built every year to accommodate India’s growing urbanisation.
The growing middle and lower-class population in India’s cities will require housing. There is a shortage of 10 million homes in India, most of it in the affordable housing segment, which presents a big growth opportunity for the real estate sector. This will in turn lead to more investment in the sector.
A study by PwC, Real Estate 2020: Building the Future, predicts that the global stock of investable real estate will expand by more than 55%, from US$29.0 trillion in 2012 to US$45.3 trillion in 2020. It may then grow further to US$69.0 trillion in 2030 — even more so in emerging economies. There will be competition among countries to attract investors. India needs to promise a more professional and transparent market to attract foreign investment. Standards and professionalism are the bedrock to instil confidence in the market.
The Indian government has been working towards increased transparency in the real estate sector. The fact that India has moved up five spots (from 40 to 35) since 2014 on JLL’s Global Real Estate Transparency Index, shows that the reform measures are working.
The biggest reform in the sector — the Real Estate (Regulatory and Development) Act, 2016 — has made real estate significantly more transparent. Buyers can now access information about developers, their track record, details about projects, the status of approvals etc from RERA’s website. It is mandatory for real estate agents to register with the state real estate authorities and share their details on the authority’s site — this will eliminate non-registered property brokers. Another reform measure, the Goods and Services Tax, eliminates multiple taxation in the sector and has paved the way for better regulation and improved transparency in the sector.
Broadly, these are the trends that we foresee in the Indian real estate sector. Another key trend to watch out for is the adoption of technology, it can quickly make some players redundant if they are not agile, leading to a second phase of consolidation in the sector.