The landscape of India Real Estate industry has changed over the years. With economic reforms, entry of Foreign Direct Investment and economical growth, India is considered as one of the attractive investment destinations globally. However amidst global financial crisis, the sector has had a curve-ball effect on its growth but continued to hold its fort due to the strong domestic demand for housing. Experts foresee this trend to rise steadily fuelled by rapid urbanisation and growing middle class population.
Noting how key policy decisions drive the growth of the Indian Real Estate and set the roadmap for the future, Unesta presents its version of the great Indian Real Estate Story covering a snapshot of each phase in the past and a glimpse into the factors that shape the future.
Protective Phase (1998-2005)
Traditionally real estate was a family run business or financed in an unstructured manner through a set of investors that each developer closely worked with, to fund acquisition or construction of a project. Though the Indian Economic Reforms started in 1991, the real estate sector has always been watched closely by policy makers and regulators as an indicator of sentiment, liquidity and speculation in the economy. The focus of the regulators was clearly to encourage financial institutions to provide capital for development of real estate and not to fuel trading and speculation.
Investment Phase (2005-2008)
Since 2005 with the introduction of Press Note(2) defining FDI regulations, all Private Equity Investments participating in large projects were directed to invest in development of new projects with a lock-in capital for 3 years rather than trade on quick profits. This policy change opened the doors to Foreign Direct Investment in India Real Estate. Many reputed Indian Developers were also listed in London AIM market to get funding for their projects. According to Grant Thornton, since then the real estate and infrastructure sector has attracted close to 27% of all private equity investments in the country. The entry of foreign players also brought a disciplined approach towards construction and better transparency in the market.
Recession & Recovery Phase (2009 -2011)
In 2008-2009, experts like Jones Lang LaSalle observed that the global financial crisis resulted in market corrections. The project underwriting assumptions made by developers, fund managers, analysts now needed to be realigned. With many funds reaching the end of the 3 year lock in period it gave way to consolidation of private equity investments. However due to strong local demand for housing and relatively low impact of global factors, the residential sector saw a recovery in 2009-2010.
With the changes in the global economic conditions, the Indian Real Estate sector is trying to forge ahead by playing an active role in the development of the economy by favouring FDI in Retail. With its backward and forward linkages with the housing and construction industry and more than 250 ancillary industries including cement, steel and other building materials, the Real Estate Sector is placed in the epicentre of India’s growth story.
Given the deep impact of the financial turmoil on western economies, India’s share in the global economy is like to grow in a significant way. By 2020, India will become the third largest construction market in the world, from the current ninth position, as per a 10 year forecast from Oxford Economics and Global Construction Perspectives.
As history has time and again portrayed how the path of the real estate industry is intertwined with all the major economic and political decisions in India, Unesta looks into what the Indian Government has planned in the future. In 2000, the Planning Commission constituted a committee on Vision 2020 for crystallising the country’s vision for the future. It focussed on 5 main areas including Agriculture and Food Processing, Infrastructure with Reliable Electric Power, Education and Healthcare, Information and Communication Technologies and growth of strategic industries.
India is amongst the top 5 nations of the world in terms of GDP. With a vision identified and a purpose to face the current challenges, the Indian Government is taking steps to shape a better future.