Real estate to benefit from focus on Economic growth and Infrastructure

The real estate market in India is poised to grow and expand on the back of strong demand for housing and office space. From both end-users and investors, the total new housing demand will be nearly 12 million units in the period 2013-17, as per a Cushman & Wakefield estimate.

This is in stark contrast to the trends over the past two years, when high interest rates and sluggish growth coupled with continued high prices across most cities led to slowing of demand for real estate. Inflation ruled high over this period, job opportunities were reduced significantly across industries, the rupee saw steady erosion against the US dollar and market sentiments reached an all-time low. The real estate market, both residential and commercial, saw a dip compared to the impressive growth during the period 2003 to 2010 when the Indian economy enjoyed an average growth rate of 8.2% per year. Growth rate for the last fiscal dipped to 4.7% falling from its peak of 9.3% in 2007-08. According to a Cushman & Wakefield report, new launches of residential projects in India dropped 12% in 2013 from a year earlier. Both luxury and affordable housing segment registered a decline of 25% and 72%, respectively.

The current high level of demand is however likely to outstrip the stock availability. Over the next five years, Indian real estate market is expected to grow at a CAGR of 20%, driven by 18-19% growth in residential real estate, 55-60% in retail real estate, and 20-22% in commercial real estate. KPMG estimates that the real estate sector is expected to grow by 30% by 2015 while the market is expected to touch $180 billion by 2020.

The International Monetary Fund (IMF) has projected 5.4% GDP for 2014. According to the National Housing Index, residential housing prices in 12 cities have already shown increase in prices in the quarter ended March, 2014, over the previous quarter ended December, 2013.

The government’s focus on the expansion and development of infrastructure such as highways, roads, ports, railway lines, manufacturing hubs, dams, canals, irrigation channels, etc., which will also lay the ground work for developing the 100 new smart cities, is expected to give a tremendous boost to the real estate industry. Among the major initiatives announced by the government in its maiden budget include:

  • Provision of Rs 7,060 crore for developing ‘100 Smart Cities’, as satellite towns of larger cities and modernizing the existing mid-sized cities
  • Allocation of Rs. 100 crore for Metro projects in Ahmedabad and Lucknow
  • Allocation to Urban Renewal (infra development) increased from Rs 5,000 crore to Rs 50,000 crore
  • Boost to road construction – Investment of Rs. 37,880 crore in NHAI for construction of National and State Highways. 8,500 kms to be completed this year.
  • Expressways to be set up along new industrial corridors – Rs. 500 crore for project preparation
  • Setting up new airports, inland navigation system, SEZs etc. through Public Private Participation

The quality and coverage of infrastructure services have a major impact on real estate markets and overall economic growth. Focused and timely implementation of infrastructure projects will not only restore confidence in the Indian economy, but it will also create mass employment opportunities nationwide, providing avenues for real estate growth and expansion across the country.

India needs to invest $ 1.2 trillion over next 20 years to modernize urban infrastructure and keep pace with the burgeoning urbanization, as per a report (India’s urban awakening) by McKinsey Global Institute (MGI). This kind of spending is sure to pump up demand for the real estate industry in India. Experts contend that the Delhi-Mumbai industrial corridor is one of the perfect examples of rise in the infrastructure industry which will cover most of the industrial zones with the parallel development of smart cities as well as efficient creation of a complete logistics network. A raft of other infrastructure projects, including expansion of mass transit systems, better rail and road connectivity, ports and airports, will uplift the quality of living for people in the cities and regions around it. As per the Census of India 2011, 377 million persons live in India’s cities, thereby constituting 31% of the total population. This is expected to increase to 40% by 2030, which makes it imperative for infra projects to be fast tracked in order to meet the challenges posed by the growing speed of urbanization.

New and emerging real estate corridors – such as Sohna, Yamuna Expressway and Dwarka-Gurgaon Expressway in NCR, Ulwe and Karanjade in Mumbai and Hennar Road in Bangalore are attracting a beeline of projects, buyers and investors due to the planned infrastructure and speedy connectivity in these locations.

In periods of economic growth or stability, employment tends to grow to accommodate people looking to buy homes and businesses looking to expand office or retail space. An improving job market will not only bring greater numbers of fresh buyers in the real estate market, it will buoy consumer confidence resulting in increased consumer spending, which will drive demand for new homes and upgrading by existing owners.

About P. Sahel

As Vice Chairman of Lotus Greens, Sahel is responsible for giving directions on overall business strategy and key investments decisions of the firm. Being one of the founding members of Lotus Greens, Sahel has been instrumental in formulating various company policies, setting up systems and processes, and building a strong team of professionals. Prior to Lotus Greens, Sahel worked for more than 16 years in some of India’s largest and most respected real estate companies like Jones Lang LaSalle for 13 years as the Managing Director of the Markets & Solution Development and DLF prior to that. The views expressed are personal

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