With the government’s constant support and schemes along with people’s buying capacity, the real estate industry has witnessed a boom over the last decade. Being the second largest employer after agriculture in India, the Indian real estate market is expected to reach US $180 million by 2020. This is calculated around 30% growth rate which is seemingly high from the previous years. With four major sub sectors of the real estate industry (Housing, Retail, Hospitality, Commercial), the growth is parallel to that of the growth of the corporate environment. Also the other major reasons for this industry to take shape well in the future include rapid urbanization, rising household incomes, emerging nuclear families and the availability of easy loans contribute to it. Also this industry sets to attract more NRI investments which again aids in the growth of this industry. There is definitely a positive change and this article focuses on the market analysis and the road ahead for the Indian Real Industry in the coming years.
Performance of the Real Estate industry so far
While the industry looks stable and projected to grow in the coming financial years, let us have a look at the convincing performances so far. From January to September 2016, the Private Equity (PE) Investment was at US $4.24 billion which is a decent 22% increase from the previous year. Also the PE activity stands stable in the current year in spite of Brexit and Trump’s visa related policies in 2016, which can again be attributed to strong economic policies and reforms. The cumulative investment into residential sector has considerably raised to 9% on a quarter-on-quarter basis. In August 2015, the Union Cabinet approved 100 smart city projects and raised the Foreign Direct Investment (FDI) limits for townships and settlement development projects to 100%. The global capital inflow is at US $5.7 million in 2016, which is considered to be the second best year for real estate after 2007. In other words, the Indian Real Estate Industry’s performance has been above average and presents a hope to perform well in the future years as well.
Market analysis and trends
The Indian Real estate industry is undergoing a paradigm shift, in terms of growth and investment. Potential investors have lost hopes in equity bonds and shares, and gold seems to be volatile in nature every day. There is a huge demand for commercial and retail properties, where foreign investors are ready to invest in huge amount. With lot of insecurities prevailing in the western countries, corporate giants have laid their eyes on Asian market, where the potential and resources are abundant. There is a phenomenal 40% increase in the capital values of the commercial office spaces as there is a demand from IT / ITES and BPO sector across major metros in India. Some of the key investments from foreign investors are:
- Fosun International Limited, a Chinese international conglomerate and investment company, plans to enter the Indian real estate market by investing US$ 1 billion through real estate private equity platform.
- A joint venture between Dutch asset manager APG Asset Management and real estate asset platform Virtuous Retail, has acquired a portfolio of three shopping malls for US$ 300 million, and has committed an additional US$ 150 million as equity capital to expand the portfolio.
- Altico Capital, the non-banking finance company (NBFC) backed by Clearwater Capital, has invested Rs 200 crore (US$ 30 million) in Bengaluru-based real estate developer Legacy Group,
- Goldman Sachs bought shares worth Rs 255 crore (US$ 38.25 million) in Vatika Hotels Private Limited, a company owned by real estate and hospitality firm Vatika Group.
- Ivanhoe Cambridge, the real estate arm of Canada’s second largest pension fund manager plans to enter into a Joint Venture (JV) agreement with Piramal Fund Management to set up a US$ 250 million venture, which will provide equity capital to developers of residential projects in the country.
The Road Ahead
A change in people’s mindset and a steady growth in the overall economy has been a major contribution for the real estate industry to flourish. With domestic developers and aspiring foreign investors, the right time to lock your money safe is undoubtedly the real estate industry. The initiative of affordable housing by the Government is about to make its completion by 2019, where an estimated one crore houses are to be built, in rural India. This may lead to the re-financing of the housing loans by National Housing Banks and can give a further push to the industry. The Prime Minister’s Pradhan Mantri Awas Yojana (PMAY) has increased their loan repayment years from 15 to 20, benefiting more mid-income holders. According to analysts, the demonetization of high value currency notes has caused the land value to decrease and would fall further in the coming years. Therefore, with all the beneficial aspects, it is only safe to invest in the real estate industry which promises to yield high returns in the near future.