Real estate market in India growing due to favourable policies

03 December 2018 3 min. read
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As government initiatives surrounding property development become increasingly pro-development, India’s real estate market is not only becoming more diverse in its scope, but is also expected to grow from its value of $120 billion last year to $180 million by 2020, according to a KPMG report.

India’s middle class is growing at a rapid rate, resulting in the substantial expansion of the country’s urban population and, consequently, the rapid expansion of its real estate market. Several analysts in recent months have predicted high numbers in revenues and assets for the sector in the near future.

Alongside the increase in demand from the residential real estate sector, a growing consumer market has also boosted India’s retail and hospitality sectors, which has resulted in the growth of the retail and hospitality real estate space. Real estate consultancy JLL predicted earlier this year that India’s retail real estate market would surpass 100 million square feet in the near future.

Urban population in India

A similar story is visible in the hospitality real estate market, as hotel occupancy rates increase rapidly. According to a new report from Big Four accounting and advisory firm KPMG, a combination of growing demand and conducive government initiatives have made this year a crucial one in the development of India’s real estate market.

This year, the government has demonstrated an interest in developing affordable housing across the country, and has launched targeted initiatives to promote the same. Alongside positive policies, the administration has also looked to relax the regulatory environment around real estate development.

The private sector has been equally active in bringing about this new boom. As per the report, private equity investments in the country’s real estate sector grew by 15% year-on-year for the first quarter of this year, having increased to a value of $3 billion.

Housing New launches

By 2026, this value is expected to reach as high as $100 billion, driven primarily by development in tier 1 and tier 2 cities. Outside of private equity, the overall market size of the real estate sector stood at $120 billion last year, and is expected to grow to $180 billion by 2020.

The report predicts that this number will register a further increase to $650 billion by 2025 and $850 billion by 2028. Currently, real estate contributes up to 7% of India’s GDP, which will increase to approximately 13% by 2025. The report also predicts that India’s real estate sector will become the third largest in the world by 2030, growing to a value of $1 trillion.

The sector also appears to be moving towards greater diversity, with a representative mix of residential and commercial real estate. Sales in the residential real estate space, for instance, reached a total of 288,000 last year, and had already reached 124,000 in the first half of this year.

Office space trends

In the commercial space, on the other hand, the supply and net absorption appeared to fall over the last two years, but is expected to recover this year. As a result, the supply last year fell to 27 million sq ft, down from its 2016 value of 35 million sq ft, while net absorption fell from 33 million sq ft to 29 million over the same period.

This year, supply is expected to register a significant jump to 42 million sq ft while net absorption will jump to 34 million sq ft. “Commercial assets have been the most preferred asset classes in real estate by investors over the last couple of years. It has attracted about 80% of the total investments between 2016 and YTD-2018,” said the report.