The economy owes much of its growth and prosperity to the dynamic Indian real estate market, which has emerged as a driving force behind its continued expansion. Indeed, as the second largest employment generator and GDP contributor in the country, the real estate business is a vital aspect of India’s economic landscape.
At its core, this sector encompasses the buying and selling of properties, including residential and commercial units, as well as land, buildings, and other natural resources. With the government’s recent measures to stimulate the real estate market, such as liberalization in foreign direct investment and increased transparency, the future looks bright for this sector.
As per various reports, the Indian real estate market is expected to reach a staggering US$180 billion by 2020, a testament to its potential for continued growth. However, to fully appreciate the real estate sector’s pivotal role in the Indian economy, it is important to trace its evolution over the decades. By doing so, one can gain a comprehensive understanding of its development and the impact it has had on India’s growth story.
The real estate market in India is set to witness a staggering growth trajectory over the next decade, with market size projected to reach US$1 trillion by 2030. The sector’s contribution to the country’s GDP is also expected to rise to 13% by 2025, indicating a strong and sustained growth pattern. This upswing is not just limited to residential real estate but also encompasses retail, hospitality, and commercial sectors, which are seeing rapid expansion to cater to the country’s burgeoning needs.
In 2019, the Indian real estate market was valued at Rs. 12,000 crores (US$1.72 billion), but projections suggest that it will soar to Rs. 65,000 crores (US$9.30 billion) by 2040, making it one of the driving forces behind the country’s economic growth. The growth in this sector has been aided by measures such as foreign direct investment liberalization, digitization of land records, and increased transparency.
The commercial real estate sector has also witnessed significant foreign investments, with over US$10.3 billion flowing into the market between 2017-21. Additionally, a recent replacement of the existing SEZs Act has prompted developers to anticipate a surge in demand for office spaces in SEZs.
As India’s economy continues to expand, its real estate market is poised to keep pace, offering investors and developers ample opportunities to participate in this growth story. The sector’s immense potential is a testament to its critical role in the country’s progress and development.
As India strives to become a prominent manufacturing hub on the global stage, the immense potential of the domestic real estate sector in generating employment and adding real economic value is often overlooked. Despite this, the real estate industry stands as the second-largest employment generator, second only to agriculture, contributing about 11% to Gross Value Added (GVA) growth since 2011-12. With its critical role as an engine of growth and employment, the industry boasts forward and backward linkages, which significantly impact other industries. Astonishingly, nearly half of India’s GDP is linked with the domestic real estate sector, making it a crucial component of the country’s economy.
Employment Poised Toward Nation Building
The noble task of nation-building relies heavily on a large workforce, and the construction industry plays a pivotal role in providing employment opportunities for skilled and unskilled workers. Especially in rural areas, where agriculture remains the only source of employment, the construction and allied activities sector is a vital source of income for many. Conservative estimates suggest that around 70 million Indians were employed in the real estate sector as of 2022, and the industry is predicted to exceed the $1 trillion mark by 2030.
Moreover, with the implementation of the RERA Act and improvements in labour laws and overall compliance, those associated with the Indian real estate sector have been able to benefit from the significant strides made in recent years. The sector’s contribution to job creation and economic growth cannot be underestimated, and the industry continues to be a crucial engine driving the country’s development.
Providing Demand For Supplier and Ancillary Services Industries
The real estate sector is a catalyst for growth not only for itself but also for a wide array of allied industries. In fact, over 270 industries are reliant on real estate for their business sustenance. The sector’s significant contribution to the demand for key supplier industries like steel, cement, timber, and construction materials, as well as ancillary services industries such as design, contracting, facility management, leasing & property consultancy, cannot be overstated. As the real estate sector continues to thrive and expand, it will create a ripple effect of positivity throughout the entire supply chain, generating growth opportunities for many associated industries and those employed in them.
Indian Real Estate Market Driving Urbanisation
The swift pace of urbanization has been instrumental in propelling India’s economic growth in recent decades, with bustling metropolises like Mumbai, Bengaluru, Pune, Hyderabad and NCR becoming beacons of human and economic activity. The real estate sector, working in tandem with local governments, private developers, and infrastructure firms, has been a critical driver of this transformation. With India poised to reap the benefits of its abundant demographic dividend for at least another three decades, the onus of sustaining this momentum of urbanization and creating the necessary housing and commercial infrastructure to support the country’s burgeoning young workforce falls squarely on the shoulders of the Indian real estate industry.
What’s more, the premiums, development charges, and approval fees arising from the real estate-related activity will continue to serve as a major source of revenue for local and state governments, further bolstering socioeconomic progress across the length and breadth of the nation.
Facilitates Foreign Investment
The Indian real estate sector, a key contributor to the country’s burgeoning economy, continues to attract foreign investment, enabling further growth and development. Infrastructure projects of the highest quality are drawing the attention of strategic investors and PE firms, with a staggering $24 billion flowing into the sector from foreign entities between 2017 and 2021. This marks a tremendous 200% surge from the previous five-year period, highlighting the increasing confidence of international players in India’s real estate market. Additionally, as both domestic and global companies rush to establish their distribution centers in the country, verticals such as warehousing, industrial parks, and data centers are poised to provide the much-needed impetus to India’s economy.
Government Investments & Programs
The Indian real estate market is poised to welcome a new era of investment, as the Securities and Exchange Board of India (SEBI) has approved the Real Estate Investment Trust (REIT) platform. This revolutionary development will open the doors to all kinds of investors, creating an opportunity worth an impressive Rs. 1.25 trillion (US$ 19.65 billion) in the years to come.
In response to a more informed consumer base and the trend of globalization, real estate developers in India are adapting and embracing fresh challenges. The shift from family-owned businesses to professionally managed firms is one of the most notable changes. These developers are investing in centralised processes to source materials, organize manpower, and hire qualified professionals in project management, architecture, and engineering.
As the central government aims to build 20 million affordable houses in urban areas across the country by 2022 under the Pradhan Mantri Awas Yojana (PMAY) scheme, the residential sector is expected to see significant growth. This increase in housing units in urban areas will also drive demand for commercial and retail office space, further expanding the real estate market.