India’s real estate sector: On the road to recovery
India has emerged as one of the most preferred real estate markets in the Asia-Pacific, according to a recent report by PwC. The size of the Indian real estate sector is expected to increase five-fold to $676 million in the coming decade with significant opportunities for global players. The sector is attractive given its huge role in India’s economy - it is currently the fourth-largest sector in terms of Foreign Direct Investment (FDI) inflows and the second largest employer after agriculture.
In recent years, India’s realty market has been bogged down by slow sales, rising inventory levels, and an outdated regulatory framework. However, the landscape is changing - the real estate sector is gradually becoming less fragmented and more organized and efficient. The government has recognized real estate as a high priority sector given its size, scalability, and the immense value it brings to the country’s economy. The government is taking proactive measures to revitalise the sector.
The government’s policy push
The Modi government has actively focused on both supply-side and demand-side interventions to facilitate growth in the real estate sector.
The real estate sector in India has a longstanding reputation of being difficult to navigate. Developers often face red tape and long drawn processes lead to delays. The new land acquisition rules allow developers to negotiate directly with the seller, thereby reducing red tape. The government is also working on simplifying environmental compliance for builders and decentralizing approval processes.
To increase ease of operating and boost foreign investment in the cash-starved sector, the government has eased rules for foreign investors to exit and repatriate their investments. Additionally, India’s central bank cut interest rates in a bid to infuse more liquidity into the system.
India is currently working towards putting in place a transparent and accountable ecosystem for the sector. The cabinet has cleared the Real Estate (Regulation & Development) Bill, which will put consumer interest at the center of all residential and commercial real estate transactions. Promoters will be expected to register projects with Real Estate Regulatory Authorities in every state, allowing buyers to oversee and monitor progress. The bill will be taken up for consideration in the Budget session of Parliament in February.
The way forward
The real estate sector is set for an upswing largely thanks to India’s overall economic revival and the measures taken by the government to liberalize the sector. The implementation of government initiatives such as ‘Housing for All by 2022’ and ‘Smart Cities’ are likely to stimulate the sector. The commercial office segment, which emerged as a bright spot during the slowdown over the past two years, is expected to gain more momentum in 2016.
The government’s proactive policymaking has increased consumer confidence and created an optimistic business environment. After more than five years, foreign investors' interest in Indian real estate is on the rise once again. Foreign private equity funds are now some of the biggest corporate real estate owners in India, and are increasingly confident in the long-term viability of India’s real estate market. A wider range of investors are entering the real estate market. Several global firms are looking directly partner with real estate developers.
India’s real estate sector is clearly at a tipping point. In order to excel, global firms will need to combine technical capabilities with industry know-how to capitalize on the upcoming opportunity. Given India’s fast-growing economy and the government’s efforts to ensure increased market transparency, the real estate sector offers huge opportunities for both investors and developers.