Real estate in India is currently emerging as a booming investment destination owing to the increasing number of investors, both Indian and NRI, against the backdrop of stable equity markets amid market volatility and rising inflationary pressures. Due to attractive rental yields and the potential for further increase in prices across India, both in metros and other cities, real estate is seen as a good bet. Rapid urbanization and increasing population contribute to the increasing demand for affordable housing units in major Indian cities.
Despite real estate prices across India already appreciating between 10 per cent and 30 per cent in 2022, India’s growth story is attracting venture capital (VC) across all segments of the Indian real estate sector. In a recent survey conducted by CII, 59 per cent respondents are strongly inclined to invest in real estate, while only 28 per cent Indians prefer to invest in equity markets. Nagpur, Coimbatore and Indore have the highest year-on-year rental demand, driving the growth of India’s commercial real estate sector. This expansion is also evident in the office leasing market, which is projected to grow by 10 percent to 15 percent in the coming fiscal. Some of the factors influencing this trend include:
Growing social infrastructure in Tier-II and Tier-III cities
An important trend has been the increasing demand for modern office space and the emerging trend of urban and semi-urban housing. Furthermore, the growing e-commerce sector in the country is fueling the demand for storage facilities, thereby boosting the market. Moreover, increasing usage of telecom services, implementation of 5G standards and localization of data has increased the demand for data storage facilities. In turn, this positively impacts the demand for dedicated data center infrastructure, leading to market growth.
The increasing acceptance of hybrid models in 2022 has resulted in a huge boom for office space in major cities. According to a survey, the net absorption of the office market in the top-7 cities including Mumbai, Bengaluru and Hyderabad is set to reach a three-year high of 38.25 million sq ft in 2022. Furthermore, net absorption for 2022 is set to exceed the five-year pre-pandemic average (2015-2019) by 3.1 per cent, reflecting the strength of Indian office markets.
Increase in NRI investment
Foreign and domestic investors are taking advantage of this growth, especially in their own cities, with millennials comprising nearly half of these investors. Investor interest has increased not only in commercial real estate but also in ultra-luxury apartments and vacation homes. The strengthening of the dollar against the rupee encourages investors to enter the domestic market with increased purchasing power. New proptech platforms have contributed to this growing interest by revolutionizing the real estate industry and enabling seamless onboarding of individuals, regardless of their geographic location. This will continue to attract NRIs to the real estate market of India.
change in policy environment
In addition, various initiatives taken by the Government of India, such as investment in smart city projects and tax exemption for housing loan interest, are expected to create attractive business opportunities for industry investors in the country. By 2030, the demand for Grade-A premium office property in India is estimated to reach 1.2 billion sq ft. This expansion is driven by various factors, including higher return on investment, increase in NRI and FDI investments and strengthening government initiatives.
Increase in demand for ultra-luxury units and holiday homes
With rising household incomes and an increase in the number of Indians among the world’s wealthiest, the ultra-luxury residential real estate market is booming, with demand often exceeding supply. Even in markets such as Mumbai, Delhi, Bengaluru and Kolkata that have historically had a healthy pipeline of such units, consumers are choosing projects comparable to those offered by international developers. This change in consumption habits has prompted Indian real estate developers to launch new luxury housing projects that cater to this growing group of home investors.
Other key factors, such as India’s emergence as a global IT power, growth of the e-commerce industry, etc., will result in a significant increase in demand for locations such as data centers and sophisticated warehouses. Tier-II and Tier-III cities will see increased commercial space in 2023, which will act as a significant job-generating catalyst. In 2022, the office, warehouse, residential and retail real estate sectors collectively attract private equity investment of $5.1 billion. This reflects the optimism of the industry regarding the development of the sector.
However, the developer community must look to achieve manufacturing and design standards similar to those of developed nations. Focusing on raising capital through additional channels such as Real Estate Investment Trusts (REITs), attracting more Indians to actively invest in the country’s real estate economy.
With REITs providing proportionate ownership of income-generating real estate assets, more Indian developers can set up their own REITs, educate investors on their potential for long-term value creation, and attract more investments through this route. Will need to search. This will attract more foreign investment and help the country’s large population establish a sustainable financing model that will take the Indian real estate industry to new heights in 2023.
(The author is CEO and director, Axis Ecocorp)
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