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Construction And Real Estate Industry In India

The Construction industry is the second largest industry in India after agriculture. It accounts for about 11% of India’s GDP and employs more than 35 million people

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Definition / Scope

  1. Real Estate Construction which includes residential and commercial construction.
  2. Infrastructure Construction which includes roads, railways, power etc.
  3. Industrial Construction which includes oil and gas refineries, pipelines, textiles etc.

Market Overview

  • The Construction industry is the second largest industry in India after agriculture. It accounts for about 11% of India’s GDP and employs more than 35 million people, especially low and medium skilled labours.
  • The Indian construction sector is forecast to grow at 7-8% each year over next decade.
  • The Indian real estate market is estimated to be approximately USD 78.5 billion in 2013 and is expected to touch USD 140 billion by 2017.
  • USD 1 trillion investments for infrastructure sector in five year plan (2012-2017).
  • India will become the world’s third largest construction market by 2025.
  • The Planning Commission estimates that by 2030, about 600 million people will live in cities.

Residential Real Estate Market

  • The residential real estate is divided into affordable housing, mid-income housing and luxury housing.
  • The residential sector which contributes about 80% to the real estate sector is expected to grow significantly over the next decades.
  • According to the National Housing Bank (NHB), Q3 2014 saw a decline in property prices of residential units in 11 major cities with steepest fall in Hyderabad (2.1%), Delhi (2.07%) and Vijayawada (1.23%) over the previous quarter.
  • Around 14 major cities registered growth including Faridabad (2.37%), Kochi (2.33%), Coimbatore (2.27%) and Mumbai (2.15%) among all 26 cities covered under the NHB Residex.
  • The residential sub-sector contributes 5-6% to the country’s GDP.

CITY WISE HOUSING PRICE INDEX (SOURCE: NHB)

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% Increase in Property Prices in Q3 2014 in Various Major Cities

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% Decrease in Property Prices in Q3 2014 in Various Major Cities

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Commercial Real Estate Market

  • The commercial real estate market comprises of office, retail and industrial segments.
  • The rental yields in Commercial Real Estate (CRE) in India are one of the highest in the world. The rental yields from residential properties are between 3-4% while in case of commercial properties it is usually 8-11%.
  • Until 2014, the supply of CRE was higher than demand by 4 to 10 million sq. ft. because buyers opted to keep expansion/new space acquisition on hold but developers did not put a hold on the supply, as the result demand-supply gap kept on increasing.
  • CRE average capital values failed to recover from the post-effects of financial crisis of 2008 and it is still 25% lower than the most recent peaks seen in mid-2008.
  • A total of 35.6 million sq. ft. of offices space is expected to become operational in 2015 and maximum contributions is expected from Delhi (9.3 million sq. ft.), Mumbai (7.3 million sq. ft.,) and Bangalore (7 million sq. ft.).
  • Real Estate Investment Trusts (REITs) are expected to be opened shortly by the government. Many retail investors would be able to get into CRE investment through REITs. Like mutual funds, REITs will pool money from investors and issue units in exchange.

Key Metrics

Metrics Value Explanation
Base Year 2016 Researched through internet


Top Market Opportunities

Smart Cities

  • The government plans to develop 100 smart cities over the next 20 years with an initial allocation of USD 1.1 billion.
  • Smart cities projects invite huge investments, so the government wants private investors as well as industry to invest in it.
  • Several countries and corporates around the world have shown keen interest in helping India achieve her smart cities projects.

E-Commerce

  • E-commerce drive the commercial real estate by picking up giant warehouses or super-sized corporate offices.
  • According to a report by CBRE, almost 25% of the total warehousing/logistics space across India in 2014 are taken by e-retail industry.
  • Many developers including Tata Housing, Unitech, Godrej Properties and Brigade, Mahindra Lifespaces and Raheja participating for selling homes through online medim.
  • Some e-commerce companies dealing in real estate such as housing.com, commonfloor.com and indiahomes.com getting significant funding to create infrastructure to support the sale/renting of real estate.

Market Drivers

Government Initiatives

  • A mission to provide a roof for each family under the HOUSING FOR ALL scheme by 2022 has been announced in the union budget 2014-15. The scheme further aims to promote Public Private People Participation (PPPP) for addressing the shortage of adequate and affordable housing.
  • The Real Estate Regulation and Development Bill 2013 has been formulation by the Government of India in transparency and efficiency in the real estate sector.
  • Real Estate Investment Trusts (REITs) will provide the necessary support to the sector in terms of required large scale investments.
  • The development of Delhi Mumbai Industrial Corridor (DMIC) has set a new precedent to development of the logistics and warehousing sector.

FDI Policy

  • The Indian Government has allowed FDI of up to 100% through the automatic route in the real estate projects. This important initiatives helps to generate new employment opportunities, encourage economic activities and increase housing stock in the country.
  • USD 10 million is required for wholly-owned subsidies and USD 5 million for joint ventures with Indian partners.
  • 10 hectares is the minimum land area for the development of service housing plots and 50,000 sq. mts. is the minimum built-up areas for construction-developments projects.
  • 50% of the project has to be completed within five years from the date of achieving statutory clearance.
  • Foreign investors are restricted to invest in any under-developed land in India.

Industry Challenges

  • Delay in construction project related approval causes the delay in the real estate development.
  • Lack of suitable land has become scarce in Indian cities which has resulted in significant surge in land prices in the urban areas.
  • Higher rates of statutory charges and multiple taxes increases the overall cost of project and thereby impacting the affordability of buyers.
  • The construction sector as a whole faces manpower shortage and the sector is heavily dependent on manual labours causes longer time for construction completion and supply getting deferred.

Market Size and Forecast

Investments Opportunities

  • Technologies and solutions for smart sustainable cities and integrated township.
  • Technologies for the promotion of low cost and affordable housing, green building solutions and smart cities.
  • With relaxation in FDI norms, the participation of global investors is expected in the near future.
  • According to Department of Industrial Policy and Promotion (DIPP) achieved FDI inflow worth USD 703 million in 2014-2015 till November.
  • The sector has attracted USD 24,009 million in FDI (10% of total FDI inflow) from April 2000 to November 2014.

Top PE Investment in 2014 in Real Estate

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Top E-commerce Investment in 2014 in Real Estate

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Market Outlook

  • Government proposal to ease foreign investments, implementation of REITs, and increased funding for affordable housing and infrastructure projects are all expected to boost real estate industry.
  • Any benefit coming from the introduction of REITs is likely to remain confined to commercial real estate which causes commercial real estate to much action while residential housing might lag.
  • The housing market is likely to see a shift from luxury towards affordable housing projects with affordable prices.
  • Buyers as well as developers are waiting to lower interest rates on home loans.
  • Improved economic conditions and government measures to provide better infrastructure and housing are expected to have a positive effect.

Key Market Players

Top Real Estate Companies by Market Cap

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References


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