India's Booming Real Estate Sector: Growth, Investments, and Infrastructure Expansion

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The real estate sector holds global prominence and encompasses four key sub-sectors: housing, retail, hospitality, and commercial. Its growth is closely linked to the expansion of corporate activities and the increasing demand for office spaces , urban housing, and semi-urban accommodations. Among the 14 major sectors in the economy, the construction industry ranks third in terms of its significant direct, indirect, and induced effects.

In India, the real estate sector plays a vital role as the second-highest employment generator, trailing only the agriculture sector. Moreover, there is a notable surge in non-resident Indian (NRI) investments expected in this sector, both in the short and long term. Among the preferred investment destinations for NRIs, Bengaluru takes the lead, followed by Ahmedabad, Pune, Chennai, Goa, Delhi, and Dehradun.

By the year 2040, the real estate market in India is projected to experience substantial growth, reaching a value of Rs. 65,000 crore (approximately US$ 9.30 billion), a significant rise from its Rs. 12,000 crore (around US$ 1.72 billion) valuation in 2019. This sector's expansion is part of a larger trend, with the overall real estate market in India expected to reach a market size of US$ 1 trillion by 2030, a considerable increase from US$ 200 billion in 2021. By 2025, it is anticipated that the real estate sector will contribute 13% to the country's GDP, showcasing its importance to India's economic growth.

Within the real estate industry, various segments such as retail, hospitality, and commercial are experiencing notable growth, which is crucial in meeting the infrastructure demands of India's burgeoning economy.

Notably, the first nine months of FY22 witnessed over 1,700 acres of land deals in the top eight cities in India, showcasing the continued activity and interest in the real estate market. Additionally, foreign investments in the commercial real estate sector amounted to US$ 10.3 billion during the period from 2017 to 2021, reflecting the confidence of international investors in India's real estate prospects.

Furthermore, developers are anticipating a surge in demand for office spaces in Special Economic Zones (SEZs) following the replacement of the existing SEZs act, which is expected to boost this particular segment in the coming times.

In 2022, Indian firms are expected to raise more than Rs. 3.5 trillion (approximately US$ 48 billion) through investments in infrastructure and real estate trusts. This amount marks a significant increase compared to the US$ 29 billion raised so far.

The office market in the top eight cities saw notable transactions and new completions from July 2020 to December 2020. The Information Technology (IT/ITeS) sector dominated the sectoral occupiers' share, accounting for 41%, followed by the BSFI and Manufacturing sectors at 16% each. Other Services and Co-working sectors recorded 17% and 10%, respectively.

In 2021, India delivered around 40 million square feet of real estate, with expectations of holding a 40% market share in the next 2-3 years. Moreover, the demand for data centers in the real estate sector is projected to increase by 15-18 million sq. ft. by 2025, according to Savills India.

The office space leasing in 2020 showed significant activity from the manufacturing sector, which accounted for 24% of the total leasing at 5.7 million square feet. The SMEs and electronic component manufacturers were among the top leasers in cities like Pune, Chennai, and Delhi NCR. Additionally, the 3PL, e-commerce, and retail segments accounted for substantial shares of office space leases.

In 2022, the top seven cities recorded office absorption of 38.25 million sq. ft.

The housing market also witnessed growth, with a significant increase in new housing supply in the third quarter of 2021 compared to the same period in 2020, across the top eight cities.

Looking ahead, the commercial spaceis expected to attract more investments in 2021-22, with companies like Chintels Group announcing substantial investments in commercial projects.

Despite these positive developments, there is still a shortage of housing in urban areas, with an estimated deficit of around 10 million units. To meet the growth in the country's urban population, an additional 25 million units of affordable housing are required by 2030.

In conclusion, India's real estate sector has experienced remarkable growth and development, encompassing various sub-sectors such as housing, retail, hospitality, and commercial. The expansion of corporate activities and the rising demand for office spaces and accommodations have contributed significantly to the sector's prominence. The construction industry's substantial direct, indirect, and induced effects highlight its importance in the country's overall economic landscape.

The real estate sector has emerged as a significant contributor to employment, ranking second after agriculture, and has garnered increased attention from non-resident Indian (NRI) investors, with several preferred destinations for investment. Projections indicate a promising future, with expectations of the real estate market reaching Rs. 65,000 crore (US$ 9.30 billion) by 2040, and the entire industry expanding to a US$ 1 trillion market by 2030.

Notably, the retail, hospitality, and commercial segments have experienced notable growth, playing a crucial role in meeting India's infrastructure demands. Foreign investments in the commercial real estate sector further demonstrate confidence in the sector's potential.

Looking ahead, the anticipation of increased office space demand in Special Economic Zones (SEZs) and the expected rise in investments by Indian firms in infrastructure and real estate trusts reflect positive prospects for the industry.

However, challenges remain, such as the ongoing shortage of housing in urban areas, emphasizing the need for concerted efforts to address this deficit and cater to the country's growing urban population.

Overall, India's real estate sector is poised for continued growth and expansion, with the potential to contribute significantly to the country's economic development and prosperity in the coming years.

Article authored by: Team Propfynd

Date: 7th August, 2023

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