Bhuvan Bhaskar
The real estate sector in India is like a sleeping monster. It has been snoring for almost a decade and all the parties involved, be it builders or buyers, are standing with bated breath. The memory of the people is still fresh in the real estate boom of the first decade of this century, when property prices used to increase overnight and it was common for the price to double in a year or two. Many investors are still stuck waiting for that round for years. The real estate industry is swinging between rising costs and rising inventories. But it seems that now this sleeping monster has started taking the horns. There are indications that demand is slowly picking up in the real estate industry once again and 2022 could be a turnaround year for the sector.
According to the Knight Frank report titled ‘Real Estate Outlook 2022’, the Indian real estate sector is showing signs of good growth in 2022. According to the Anarock report, 1.63 lakh new residential homes were built in the 7 top Indian cities of Delhi-NCR, Mumbai, Chennai, Kolkata, Bangalore, Hyderabad and Pune between January-September 2021, a 27% increase over the full year 2020. During this period, 1.45 houses were sold in these cities, which is 5% more than the full year of 2020. In the commercial category, according to the CBRE report, the office leasing activities during the July-September quarter of 2021 grew by 140% over April-June and reached 13.5 million feet.
While experts are attributing the improvement in conditions in the residential category to the relaxation of interest rates in the era of COVID and the increase in demand for big houses, the reason for the tremendous increase in office activities in the commercial category is due to government policies, expansion plans of companies. and new and emerging trends in business practices.
A well-known real estate consultancy firm has projected that by 2025 the share of real estate in the Indian GDP will be 13% and by 2030 this entire sector will reach $1 trillion. According to Saviles India, the demand for real estate for data centers alone will increase to 15-18 million sq ft by 2025. The organized retail real estate stock is projected to grow by 28% by 2023 when it will reach 82 million sq ft. This movement of real estate in the residential and commercial categories has also broken the resistance levels imposed over the years on land, house, flat and office space prices. India is the 10th country in the world to register the fastest growth in the housing market.
These early signals are well recognized by international investors and hence Indian real estate has been receiving funding and financing from all over the world over the past few months. ICRA estimates that Indian companies will raise over $48 billion through infrastructure and real estate investment trusts during 2022. Last year this amount was $29 billion. Private market investor Blackstone, which has invested around Rs 3.8 lakh crore in Indian real estate, is looking at opportunities to invest another Rs 1.7 lakh crore by 2030.
Since the formation of the Real Estate Regulatory Authority (RERA) by the Narendra Modi government in March 2016, accountability and transparency has increased in the real estate sector and this has increased the confidence of foreign investors, including domestic, in this industry. In the year 2020, institutional investment of $5 billion came in Indian real estate, while in the fourth quarter of 2020-21, there were 19 private equity deals through which funds of about Rs 24,000 crore came.
Overall, the sector received USD 2.4 billion during January-June 2021, a year-on-year growth of 52%. Even during the period of Corona epidemic, in which economic activities came to a complete halt, foreign funding in real estate was still going on. The total foreign direct investment (FDI) in this sector between April 2000 and June 2021 was $51.5 billion.
All these figures indicate that the monster of the Indian real estate sector is ready to wake up once again from the Kumbhakarni slumber of almost a decade. In this, the ongoing phase of reduction in interest rates will also play an important role. But how long the third wave of Omicron Corona lasts and how deadly it is, will also depend on the condition and direction of the revival. However, looking at the 2020 experience, there is no reason to believe that this wave will have any far-reaching impact on the real estate industry.
The Union Budget 2022-23 is going to play an important role in setting the pace of growth of the sector. It is almost certain that nothing negative will happen for real estate in the budget, but what positive can come, which will give more energy to the housing construction sector ready to run. This is one sector which will be most affected by the announcements and steps that will be taken for other sectors. For example, data related to the banking sector and fiscal deficit will decide whether interest rates will remain stable at lower levels or move upwards in the coming months.
Announcements related to land reforms will decide what will be the impact on the availability and cost of land with real estate companies. Income tax declarations will decide how much additional income will be left with the common man to pay EMI for the house and the increase or decrease in GST on construction technology and machines will decide how the cost of real estate companies will be affected. And overall, these announcements will decide how much the real estate market will shine in the envelope of 2022.
Overall, if a blueprint is to be drawn for the fate of real estate in 2022, then it can be said that 2021 has prepared the role of a sharp growth and now the ball is in Finance Minister Nirmala Sitharaman’s court. If the Finance Minister gets his share of kicks right, this sector will not miss the goal post.
(The author is an expert in political and economic matters)
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