A spate of structured reforms including demonetisation and Goods and Services Tax (GST), implementation of RERA, a push to affordable housing, the Benami Transactions Act and the REITs have led to critical growth and development within the infrastructural, residential and commercial areas. This, in turn, has renewed the interest of the investors in the sector giving it a new lease of life. The country has also moved up 30 ranks to the 100th position on the World Bank’s scale of countries by Ease of Doing Business for 2018. All this has made Indian real estate an investment-friendly destination.
The extent to which the real estate sector has grown can be gauged from certain key numbers. In 2018, the sector clocked in nearly $5 billion in institutional investment and 60 per cent of this capital flow was led by Foreign Institutional Investors.
Economic forecasts also paint a positive story. The RBI survey of professional forecasters (August 2018) indicated that GDP is likely to grow at 7.4% in 2018-19, up from 6.7 per cent in 2017-18, and is expected to accelerate further by 20 basis points in 2019-20 on the back of support from private consumption and investment.
The policy reforms have also brought in a significant improvement in the transparency and credibility of the sector in India. Real Estate investment in India is now safe within a legal framework and jurisdiction focused on customer rights. Thus, the country has seen a significant improvement in demand from end-use customers and NRI investors alike. The stringent requirements of RERA have resulted in a reduction of launches and thereby reduced inventory overhang and excess supply in the market.
If we look at the preferred markets, cities like Mumbai, Delhi NCR and Bengaluru have accounted for over two-third of investments from 2009-2018. With 42 per cent share of investments valued at $8.6 Bn, Mumbai is a clear front-runner It is followed by Delhi NCR and Bengaluru with $4.4 Bn and $2.6 Bn respectively. It is worth noting that among the different types of institutional investors, private equity investors have contributed 80% or more of the overall institutional investment in the last decade.
Real estate markets are poised to benefit not only from the government’s policy push towards reforms, speedy completion of several infrastructure projects, but also an over-arching ‘can do’ spirit riding across private as well as public sector enterprises today.
In terms of market traction, commercial real estate retains its status as the most buoyant sector drawing 50 per cent of all investments. Demand for Grade A office space saw new highs and vacancy levels declined in prime locales. Apparently, indirect taxation framework also helped to streamline the sector.
Besides commercial, the retail segment is another asset class that witnessed a sharp rise in investments. From $134 Mn during 2009-13, investments in retail surged 11-fold to reach $1.6 Bn between 2014 and 2018.