The Indian real estate sector has long been considered a minor player in the Asian commercial property market. However, this perception is changing rapidly as the country undergoes significant economic and regulatory reforms.
Luxury realtor and social media content creator, Snehil Yadav says, “Despite lagging behind in direct investment volumes, the Indian real estate sector is experiencing a once-in-a-generation shift, driven by factors such as offshoring, manufacturing investments, and digitalization. This article explores the key reforms and transformative forces that are positioning India’s real estate sector to live up to its true potential.”
Economic and Regulatory Reforms Laying the Foundation for Growth
India has implemented comprehensive economic and regulatory reforms over the past decade, creating a strong foundation for sustainable growth. The introduction of a unified goods and services tax (GST) in 2017 replaced multiple regional and national levies, establishing a unified domestic market for the first time.
Additionally, the government’s “India Stack” initiative, which includes a biometric identity scheme and a digital payments system, has facilitated greater financial inclusion and a more inclusive digital economy.
One significant reform was the establishment of a regulatory regime for real estate investment trusts (REITs) similar to mature markets. The successful listing of India’s first REIT in 2019, backed by global private equity fund Blackstone and Bangalore developer Embassy Group, paved the way for the launch of other REITs. These reforms have enhanced transparency, liquidity, and institutionalization within India’s commercial property sector, fostering growth and building investor confidence.
India’s Office Sector Defying Global Trends
India’s position as a leading offshoring destination for tech companies globally is driving leasing activity in the office sector. While the pandemic-induced shift to remote work has impacted US commercial real estate, India’s office sector remains resilient. Between 2015 and 2020, tech and tech-enabled services accounted for a significant share of net office space occupancy.
The need for physical presence to address security and working infrastructure-related issues has contributed to higher office occupancy rates.
The presence of US firms and the growth of the REIT market have further attracted foreign investment. India’s main office markets offer institutionally owned grade A office spaces at more affordable costs compared to other major cities worldwide. These factors, combined with the country’s skilled workforce and corporate hub development, are propelling the demand for office spaces and supporting the growth of Indian real estate sector.
Indian Real Estate & Residential Market Thriving Amid Structural Forces
India’s residential market continues to defy global trends. While rising borrowing costs have strained housing markets elsewhere, sales in India’s major cities reached an all-time high in 2022, with the mid-end segment accounting for a significant portion of units sold. Structural forces, such as India’s demographic dividend, urbanization, rising incomes, and integration into the global economy, are driving demand in the residential sector.
The establishment of new corporate hubs, coupled with the proliferation of global capability centers, has led to the development of residential projects near offices and business parks. These factors, along with increased institutional investment, indicate strong growth potential in Indian real estate sector and the residential market.
Retail Sector Resilient Amid E-commerce Boom
Indian real estate sector and the retail sector has shown resilience despite the global shift to online shopping. Strong demand for premium mall spaces has led to the opening of 25 new shopping centers in the country’s top seven cities. Institutional investment in the sector has surged, and the introduction of the first retail-focused REIT has further bolstered investor confidence. The retail sector in India continues to attract both domestic and international players, contributing to the growth of the real estate market.
Overcoming Challenges and Looking Ahead
While Indian real estate sector is not immune to global headwinds, such as rising debt costs and softening office leasing demand, the substantial increase in institutional investments signifies confidence in the sector. Most of these investments are indirect, through partnerships between foreign and domestic companies, enabling global investors to deploy capital at scale.
Indian real estate sector has made remarkable progress in recent years, defying its minor role in direct investment volumes. With ongoing reforms, institutional investments, and transformative forces at play, the sector is well-positioned to fulfill its potential and become a key player in the Asian commercial property market.
Indian real estate sector is undergoing a significant transformation, propelled by economic and regulatory reforms, offshoring trends, and the digitization of the economy.
Despite lagging behind in direct investment volumes, the industry’s potential is undeniable. With enhanced transparency, liquidity, and growing investor confidence, Indian real estate sector is poised to thrive in the coming years. The country’s office, residential, and retail segments offer promising opportunities for growth, driven by strong demand and structural forces.
As India continues its path of reforms and attracts further domestic and foreign investments, the real estate sector is set to live up to its true potential and contribute significantly to the nation’s economic growth.