#4 Factors That have Influenced India's Real Estate Industry
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.
India has soared to the reputation of an attractive investment destination globally. Real estate is the second largest employer in the country, after the agriculture industry with an anticipated growth rate of 30 per cent over the next decade.
In the recent past, real estate has created a skyrocketing demand due to diverse factors such as an increase in purchase power, availability of banking facilities, consumer-friendly financial organizations, better government reforms, and others. As a result, it is expected to double up to $180 billion by 2020, from the recorded $93 billion in 2014.
The primary players in the real estate sectors are developers, landlords, tenants, buyers, sellers, builders, real estate agents, etc. Over 250 ancillary industries such as cement, iron, steel, brick, timber, etc. are dependent on the real estate industry.
Four subsectors, including housing, retail, hospitality, and commercial, formulate the real estate industry. The housing sector alone contributes over 5-6 per cent to the country’s GDP, as per records released by Indian Brand Equity Foundation (IBEF).
Investments in Realty
After the Government of India announced 100 per cent foreign direct investment (FDI) in the country, the real estate industry underwent a boom. According to the World Investment Report, released at the United Nations Conference in 2016, India is the fourth Asian country to hold maximum FDIs.
While the global capital flow through FDI in 2016 soared to $ 5.7 billion as reported by a leading media publication, the Indian real estate market has been attracting business bees across the globe at a rapid pace.
As per the data released by Department of Industrial Policy and Promotion (DIPP), the construction development sector of India has received FDI equity inflows of $24.28 billion in the period between April 2000 and December 2016.
Trends in Real Estate
As much as government reforms impact the chief stakeholders in realty, the ebb and flow of demand-supply also leave footprints on different sub-segments. Certain trends that have influenced or are predicted to influence the real estate industry are listed further in this article.
- Real Estate Regulation Bill (RERA) implemented on May 1, 2017, is aimed to introduce unparalleled transparency and increased accountability of developers. It is aimed at bringing about necessary discipline, by making the real estate sector more competitive, valued, hassle-free and consumer friendly. Across various states, real estate businesses have begun molding current business models to suit the potential positive impacts of RERA on not only consumers but also developers.
- The Goods and Services Tax (GST): The much awaited unified tax system for all goods and services is speculated to bring about certain shifts in predominant functional procedures of the industry. GST rates declared for ancillaries such as cement, bricks, and others are also anticipated to impact the realty sector in multitudinous ways.
With GST, while abatement enjoyed under service tax laws will be diminished, there will still be a notable reduction in tax management expenses. The abolishment of VAT, Service Tax, and other indirect taxes is expected to make a value of property cheaper than the past. Presently, taxes borne by builders during procurement of land are added to the cost of an apartment unit, resulting in increased price burden on the buyer. However, with the introduction of hassle-free, transparent transactions, GST is expected to be a boon for both buyers and builders.
- Affordable housing: Affordable housing is soaring to unprecedented heights in terms of increasing public as well as private investments. Apart from the public policies mentioned earlier, one crore houses in totality are proposed to be built by 2019, aided by cheaper sources of finance including external commercial borrowings (ECBs). Housing loans, credit subsidies, schemes such as PradhanMantriAwasYojana and demonetization, will lead to controlled prices increasing demand for affordable housing in the near future.
- Luxury Housing: Although the storm of demonetization had slowed down the upright strides of mid-income houses, it did not leave irrevocable impacts on the luxury housing sectors. As opposed to loans, personal wealth is a major driver for this niche market comprising a specific segment of consumers. As investors pour in money and builders churn out properties at par with the rising demands for excessively well-designed homes in prime locations, the fat margins prevalent in such segments will not deteriorate. In 2016, over 45,000 luxury housing units were launched across 9 cities that have not seen any significant reduction in costs, affirming the thriving luxury housing segment of realty.
Thus, Real Estate has evidently been the catalyst for growth, by placing India on the global pedestal for quality housing, corporate and retail infrastructure.