Overview on sector:
The real estate sector is second largest after agriculture, Real Estate is globally recognized sector and is slated to grow at 27% year-on-year. The real estate sector comprises four sub sectors – housing, retail, hospitality, and commercial. The growth of this sector is complemented by the growth of the corporate environment and the demand for office space as well as urban and semi-urban accommodations. The construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. Around 80% belongs to residential segment. Real estate sector in India is expected to reach a market size of US$ 180 billion by 2020 from US$ 126 billion in 2015.
4th largest sector in terms of FDI inflows stood at US$ 24.67 billion from April 2000 to December 2017. Housing sector is expected to contribute around 11 per cent to India’s GDP, more than 70% urban areas contribute sectors GDP and to reach a market size of US$ 180 billion by 2020. India’s real estate market contributes US$ 126 million and expecting US$180 million by 2020. The Indian Real Estate sector witnessed significant improvement in 2017, with a total Foreign Direct Investment of USD 257 million, the Economic Survey 2017-18 noted.
- Rapid growth of urbanization.
- RERA (The Real Estate (Regulation and Development) Act) to support investor and protect their rights.
- Demonetization has hampered retailers through cash shortages due to which commercial real estate demand.
- Foreign Investors are hesitating due to bureaucratic procedures for project approvals and corruption.
- Lack of infrastructure.
- Fast growing young population of India supports strong demand.
- REITs (Real Estate Investment Trusts) which is going to boost investment.
- The Indian Real Estate Sector is still highly unorganized with lots of middle men.
- Indian economy is growing in an uneven manner and the environment is unpredictable.
- Demonetization has resulted in shortage of cash and low transactions in property market.
100 per cent FDI permitted in real estate projects within Special Economic Zone (SEZ)
100 per cent FDI permitted for developing townships within SEZs with residential areas, markets, playgrounds, clubs, recreation centres, etc.
Exports from SEZs reached Rs 5.51 trillion (US$ 85.54 billion) in FY18.
- Government’s plan to build 100 smart cities would reduce the migration of people to metro and other developed cities.
- Relaxation in the FDI norms for real estate sector has been done to boost the real estate sector.
- The urban housing shortage in India is estimated at around 10 million units which is being addressed through Pradhan Mantri Awas Yojana (PMAY).
- The government also launched 10 key policies for real estate sector in 2016, namely:
- Real Estate Regulatory Act
- Benami Transactions Act
- Boost to affordable housing construction
- Interest subsidy to home buyers
- Change in arbitration norms
- Service tax exemption
- Dividend Distribution Tax (DDT) exemption
- Goods and Services Tax (GST)
- Permanent Residence for foreign investors
Impact of macroeconomics on real estate sector:
Demand and Supply:
The real estate sector in India is quite attract to grab the attention of investors as they are getting huge profits and high returns on their investments.
Apart from real estate investment property in India no other business is lucrative and revenue generating viz., includes hotels, resorts, hospitals, educational institutions, and housing and commercial premises.
Government has reduced the minimum mandatory area to allow FDI in real estate sector from 100 acres to 25 acres.
With 100% FDI in real estate now being allowed, overseas developers are also closely looking at the market.
Real estate investment offers an opportunity to earn rental income, creating a smooth cash flow.
Investor has a higher control of its asset in real estate than other type of investment.
Real estate investment is often called a hedge against inflation. Because over the period of time, property values do climb higher and higher, giving you better appreciation on the asset.
Source: Ministry of infrastructure, Wikipedia, Statistics, Economic times, and India Brand Equity Foundation (IBEF).