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Real estate industry in India to touch US$ 1T by 2030

Real estate sector in India is expected to touch a market size of US$ 1 trillion by 2030 from US$ 120 billion in 2017. By 2025,this sector is also estimated to contribute about 13 per cent of the India's GDP.

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Definition / Scope

Real estate is a real property consisting of building, underground and land. Residential can be grouped into three categories namely- residential, commercial and industrial. Residential consists of undeveloped lands, town homes and houses; commercial real estate consists of warehouses, office buildings, retail store building; and industrial real estate includes farms, mines and factories.

Market Overview

The real sector in India includes the following segments:

  • Residential Space – It contributes 80 per cent of the real estate sector.
  • Commercial Space – Most of the activity is in the leasing segment with few players’ presence across India.
  • Retail Space – The retail segment attracted private equity investments of US$ 853.4 million between 2015 and March 2018.
  • SEZs – India had approved 421 SEZs of which majority are in the IT sector.

Key Metrics

Metrics Value Explanation
Base Year 2018 Researched through internet


Market Risks

  • Rental yield in India is among the lowest in the world about 2.2 per cent. Rental income is quite low in major cities like Mumbai, New Delhi and Bangalore despite of high property price.
  • A developer requires about 30 to 40 regulatory approvals for a housing project in a metro city.
  • Real estate asset is no longer showing the kind of 20 to 30 per cent appreciation in price that was witnessed between the years 2001 and 2008. For instance, between 2013 and 2017, the prices of property in Bengaluru and Mumbai have just surged by 5.75 per cent and 7.50 per cent respectively. While during the same period, Delhi faced negative price growth of -0.70 per cent.

Top Market Opportunities

  • Healthcare: By 2022, India’s healthcare market is expected to reach US$ 372 billion. India needs to add 2 million hospital beds to meet the global average of 2.6 for every 1,000 people.
  • Senior Citizen Housing: Growing urbanization and nuclear families have given upsurge to several townships that are developed to take care of the elderly. The segment is expected to reach US$ 7.7 billion by 2030.
  • Service Apartments: The increase in number of tourists has driven the demand for service apartments. The number of foreign tourist arrival in 2017 reached 10.177 million and 7.47 million between Jan-Nov 2018.
  • Hotels: By 2025, FTAs in India is expected to touch US$ 15.3 million which is expected to lead an increase in demand for hotels.
  • Office Space: Growth in IT, BFSI, consulting and manufacturing is driving the office market. Office space leasing in top eight cities is estimated to cross 100 million sq. ft. between 2018-20 while commercial office stock is estimated to cross 600 million sq. ft. Gross office absorption in top Indian cities increased 26 per cent y-o-y to 36.4 million sq. ft.
Gross office space absorption.PNGForeign tourist arrivls.PNG

Market Drivers

  • Investments: FDI in real sector stood at US$ 38.92 billion during April 2000 to December 2018. Construction is the fourth largest sector in terms of FDI inflows. In India’s real estate sector, cross-border capital has surged 600 per cent during 2012-17 to touch US$ 2.6 billion. Additionally, private equity and venture capital stood US$ 4.1 billion between Jan-Nov 2018 in this sector.
  • Strong Demand: Due to growing economy, increased urbanization and rising income, demand for residential properties has increased. About 10 million of people in India migrate to cities annually. The number of urban population is expected to reach 543 million by 2025. About 70 per cent of India’s GDP will be contributed by the urban India by 2020. Real estate is also a preferred asset class for investments among investors in India.
  • Policy Support: The GOI has allowed FDI up to 100 per cent for settlements development projects and townships. By 2022, 40 million houses are to be built in rural areas and 20 million in urban area under the Housing for all schemes. There has also been made provision for reduction in minimum capitalization for FDI investment to US$ 5 million from US$ 10 million to boost urbanization.
CUMULATIVE FDI.PNGPop breakdown.PNG

Industry Challenges

  • Some Indian cities have undergone a sharp decline in lending rates and property prices. Delhi-NCR faced the sharpest drop with decline in demand by 25-35 per cent. The decline in demand is led by litigation issue, poor planning and untimely deliver of projects. Consequently, there are 2, 50,000 units of unsold residential houses in Delhi-NCR.
  • Prior the GST implementation, there was a service tax of 4.5 per cent which rose to 12 per cent post GST. The buyers of property were already paying stamp duty and registration charges on properties. But after the addition of 12 per cent GST, the total statutory cost has increased by 20 per cent of the cost of property.
  • Big cities such as Mumbai, Gurugram, Bengaluru, Noida, and New Delhi have high inventory.
Housing inventory.PNG

Regulatory Trends

  • By 2025, the GOI’s Housing for All Initiative is estimated to bring US$ 1.3 trillion investments in the housing sector.
  • More than 6.85 million houses have been sanctioned up to December 2018 under the Pradhan Mantri Awas Yojana Urban.
  • The creation of National Urban Housing Fund was approved with an outlay of US$ 9.27 billion in February 2018.
  • Housing loan up to US$ 54,306 in metro cities was included in priority sector lending by RBI in June 2018 with the aim of boosting affordable real estate.

Other Key Market Trends

  • The GOI has set a target of 20 million foreign tourist arrivals by 2020. The growing number of tourist will drive the demand for the real estate in hospitality sector. Further, the target of attracting 8 million medical tourists by 2020 is also driving medical tourism in India.
  • Real Estate Investment Trusts (REITs) are securities related to real estate that can be traded after getting listed on stock exchanges. REIT will open channel for commercial and infrastructure sector in India. Embassy Office Parks, a Bangalore based real estate developer announced to raise US$ 775.66 million through India's first REIT listing.

Market Size and Forecast

  • The market size of real estate industry in India was worth US$ 120 billion in 2017.
  • Office space has been driven by growth in IT, BFSI, consulting and manufacturing firms. Gross office absorption in top Indian cities has surged 26 per cent y-o-y to 36.4 million sq. ft. between Jan-Sep 2018. Co-working space across top seven cities has surged rapidly in 2018 reaching 3.44 million sq. ft. Mumbai, NCR and Bengaluru accounted for 60 per cent of total office space demand in 2017.
  • Housing sales are estimated to surge by 16 per cent on y-o-y basis by the end of 2018.The urban housing shortage in India is estimated at nearly 10 million units.
  • In 2019, nearly 32 new malls with area of 13.5 million sq. ft. are expected to start operations in India. Mumbai, NCR, Bengaluru, and Kolkata noted the highest growth in retail real estate during 2018.
  • NCR and Mumbai are the biggest hospitality market in India. The government initiative to promote tourism in Tier 2 and Tier 2 cities is surging demand for hotels in such cities. The number of rooms increased from 82,000 in 2013 to 120,000 in 2017.
City wise space demand.PNGDemand for commercial space.PNGNHB Pricing index.PNGHousing demand in top 8 cities.PNGY-o-y growth.PNGUrban rural housing shortage.PNGNo of malls.PNGTrend analysis stock rooms.PNG

Market Outlook

  • Real estate is expected to touch US$ 650 billion by 2020 and US$ 1 trillion by 2030 in India from US$ 120 billion in 2017.
  • The share of real estate sector in India’s GDP is expected to increase by twofold from current 7 per cent by 2040.
  • Rapid urbanization is expected to drive the real estate industry. The number of people living in urban areas is expected to reach 543 million by 2025.
  • The approval of SEBI for the Real Estate Investment Trust platform will assist in allowing all kinds of investors to invest in real estate market of India. It is expected that an opportunity worth US$ 19.65 billion will be created in Indian market.
  • The GOI's "Housing for All Initiative" is expected to bring US$ 1.3 trillion investments in the housing sector by 2025.
  • Home loans in India is expected to expand 17-19 per cent in FY19.
  • The office space leasing in top 8 cities is expected to cross 100 million sq ft. during 2018-2020.Grade-A office space absorption is expected to reach over 700 million sq. ft. by 2022, with Delhi-NCR leading the demand.Warehousing space is expected to reach 247 million sq. ft. in 2020.
REAL ESTTAE MARKET SIZE.PNGURBAN POP.PNG

Competitive Factors

  • India is among the top 10 price appreciating housing market internationally.
  • India ranked 19 out of 73 countries in attracting cross-border capital to its property market in 2017.
  • Bengaluru and Mumbai have been rated as the top real investment destinations in Asia.

Key Market Players

  • Godrej Properties: Godrej Properties is one of the leading real estate developers in India with presence in more than 10 cities. It develops residential, commercial retail and IT projects. It has delivered around 3 million sq. ft. of space in four cities in FY18 and witnessed 152 per cent sales growth in the same year. It has also partnered with Taj Hotels to develop world class Taj brand hotel.
  • DLF Limited: DLF Ltd. is the largest real estate developer in India with presence across 24 cities. It has 70 years of experience in realty sector and develops residential, commercial and retail projects. It has development potential of 227 million sq. ft.
  • Dewan Housing Finance Corporation Ltd: Dewan Housing is part of the Wadhawan Global Capital Group and has become one of the leading financial institutions in India. The company provides home loans, loans against property, SME loans and loans to real estate developers. It has presence in 350 locations and significant penetration in tier-I and tier-II towns.
  • UniTech Real Estate: UniTech was founded in 1971 and started as consultancy firm but later evolved into real estate development company. They are involved in large scale residential projects that includes home, malls, hotels, school and commercial complexes.
  • Omaxe : It is a real estate developer and construction contractor that is present in over 30 cities. They operate in states of Himachal Pradesh, Uttar Pradesh, Madhya Pradesh, Haryana, Delhi, Punjab, Rajasthan and others.
  • Kolte Patil Developers: It is a Pune based real estate developer with most of the large residential projects, commerical buildings, retail projects and several IT parks. It is best known for their township projects.
  • Oberoi Realty : Oberoi Realty is owned by Vikas Oberoi, the richest billionaires in India. The company has completed over 39 projects with area of 9.16 million sq ft of space across the Mumbai city. The popular projects of company are Oberoi Woods, Oberoi Crest, Oberoi Parkview, Oberoi Sky City, etc.
  • Brigade Enterprises : Brigade has operations mainly in South India and in cities like Chennai, Hyderabad, Kochi and Mysore. The company has completed over 100 projects with area of nearly 18,58,045 sq. km.
  • Ansal API : It is one of the oldest real estate developers known for large-scale township projects. They have completed over 19 large-scale townships in Northern Indian cities. Their portfolio also includes malls, group housing, hotels, IT parks, etc.
  • Jaypee Infratech: It is a part of the Jaypee Group. The company's business segment include Yamuna Expressway project and Healthcare and real estate projects.

The below tables shows the top real estate developers across major cities in India announced by Bloomberg TV. The companies were chosen on the basis of various parameters like value of projects, launch price, average size of units in each project, sale velocity and others.

NCR Delhi.PNGKolkata.PNGChennai.PNGHyderabad.PNGMumbai.PNGBangalore.PNGPune.PNG

Strategic Conclusion

The market size of real estate industry in India is expected to reach US$ 650 billion by 2040. Increasing urbanization, income, nuclear families, and economic growth are driving the residential and commercial demand of real estate in India. The initiative of 'Housing for All by 2022' by GOI is driving residential activity.

Further Reading

Appendix

  • BFSI – Banking, Financial Services and Insurance
  • CAGR – Compound Annual Growth Rate
  • CBD – Central Business District
  • FDI – Foreign Direct Investment
  • FSI – Floor Space Index
  • HIG – High Income Group
  • HNI – High-net worth Individual
  • GOI – Government of India
  • IT/ITeS – Information Technology/Information Technology enabled Services
  • LIG – Low Income Group
  • MIG – Middle Income Group
  • MNC – Multinational Corporation
  • NRI – Non Resident Indian
  • SBD – Special Business District
  • SEZ – Special Economic Zone
  • US$ - US Dollar


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