India’s real estate sector has managed to get out of the tunnel and into the light as far as latest reports and expert analyses is concerned. While this has been a long journey towards stabilization right from the year 2016 onwards when demonetization was announced, the industry churn has led to greater transparency and accountability and this has naturally drawn more investors to the sector. 2019 was a mixed year for Indian real estate owing to the NBFC crisis and subsequent liquidity crunch.
Yet, the silver lining amidst the upheavals was the fact that the market became more mature, consolidated and organized. GST and RERA, while being sector disruptors initially, have worked wonders when it comes to getting fly-by-night operators out of the market while also enhancing developer accountability and customer confidence in the sector. The Government has also announced a stress fund that will help in completion of multiple stalled projects across the country, thereby bringing relief to thousands of homebuyers and developers alike.
It has also taken measures to enhance flow of credit to the sector for the benefit of developers while budgetary initiatives, the GST rate cut, added tax benefits and emphasis on affordable housing have all contributed towards increasing sales volumes for reputed and organized players who are now clearly preferred by customers in almost every segment. The boom in the commercial real estate sector was the talk of 2019 and even residential sales have recovered in several major Indian cities. 2020 promises to be even better with growing investor interest in Indian real estate and several other REITs (Real Estate Investment Trusts) on the horizon in addition to expected growth measures in the upcoming Union Budget for 2020-21.
Investments to increase for Indian real estate this year
Investments may go up by approximately 5% in 2020 for Indian real estate to touch $6.5 billion cumulatively as per several reports and studies. This will majorly be driven by the boom in the commercial real estate segment and huge demand for Grade-A commercial spaces or office spaces coming from IT and ITeS companies and other growing sectors. In 2019, Indian real estate drew investments of a whopping $6.2 billion which indicated growth of 8.7% as compared to 2018.
Foreign investors are hugely attracted to the Indian realty market now and purchased several office assets last year. Foreign funds comprised a huge 78% of overall investments made in the sector last year as per reports. Here are some other key aspects worth noting:
- Approximately $56.6 billion or roughly Rs. 410,000 crore has flowed into the Indian realty sector ever since the year 2008 by way of investments.
- 2019’s tally of Rs. 43,780 crore or approximately $6.2 billion represented one of the best years in terms of investments garnered by the sector.
- 2020 should be even better and riding the growth momentum, particularly in the commercial real estate segment, $6.5 billion may be achieved.
- Investors will focus primarily on commercial assets including office spaces over the next 2-3 years for generating decent returns.
- There will be strong demand for office spaces driven by appreciation in rentals over the next few years.
- 40% of overall investment inflows will be taken up by the commercial real estate sector this year as per forecasts.
- Commercial office assets accounted for a sizable 46% of investment inflows last year or approximately $2.8 billion or Rs. 19,900 crore.
- Investor confidence has gone up with the successful implementation of pro-active measures such as RERA or the Real Estate Regulatory Authority and GST or Goods and Services Tax along with the IBC (Insolvency and Bankruptcy Code) and relaxation of FDI (foreign direct investment) regulations.
- Investors in 2020 will be seeking attractive office space assets including those under construction in major IT and ITeS hubs such as Bangalore, Pune and Hyderabad.
With the slump in the real estate sector coming to an end, investors will be more flexible in terms of considering investments in residential real estate assets. It will still take some time for residential realty to start booming again but there are indications of rising consumer interest and greater stability in this segment. It will also benefit from the increased demand for commercial real estate since economic growth and higher employment automatically lead to a pick-up in housing demand.
Investors will also be interested in new growth opportunities including rental homes which are popular amongst young professionals relocating to other cities for employment. Co-working, co-living, retail and warehousing are other segments which should also be prime opportunities for investors in 2020 while student housing and senior living are two segments that may flourish as well. All in all, 2020 promises to be a better year for Indian real estate with higher investments, a continued boom in commercial/office space segments and greater stability and growth in the residential space.