Indian real estate is emerging as a preferred investment avenue amidst market volatilityApart from factors like rapid urbanisation and a rising population contributing to increased demand for affordable housing units in major Indian cities, investors too are making a beeline for residential and commercial real estate. With equity markets stagnating amidst increasing inflationary pressures, real estate investments are ramping up due to the attractive rental yields and the potential for further price appreciation.
This is despite real estate prices already appreciating between 10-30% across India in 2022, highlighting India’s growth story that is inviting both domestic and international venture capital (VC) interest across segments within the Indian real estate sector. In fact, according to a recent CII survey for H1 2022, 59% of the respondents are strongly inclined towards investing in real estate, compared to only 28% who continue to prefer investing in Indian equity markets instead. We see this trend only getting stronger as
its status as the fastest-growing major economy in the world.
Rising per capita income and growing social infrastructure in Tier II and III cities.Unlike the popular perception that growth in the real estate sector will be concentrated in metropolises, investments are getting more broad-based as the Indian government pushes on with its infrastructure development focus. While capital inflows into commercial and office spaces recorded a 53% growth in the first three quarters of 2022, institutional investors are actively investing in greenfield and ready-to-use Tier II and III cities with an eye on the future.
This trend is corroborated by the fact that per capita incomes in cities like Goa and Sikkim have trumped those seen in the country’s capital, Delhi, for FY2021-22. As more professionals and even expers move back to their native towns due to a permanent shift towards hybrid working, cities like Kochi, Chandigarh, Jaipur, and Varanasi, among many others, will witness increasing demand for smart housing and commercial real estate units. With the Union Government stepping up infrastructure building even in India’s rural hinterlands, it is widely believed that such upcoming urban centres will witness better price appreciation than the other major housing markets in the country today.
Robust demand for ultra-luxury units and vacation homes will get stronger.With rising household incomes and more Indians featuring among the world’s wealthiest citizens, the ultra-luxury residential real estate segment has been booming, with demand often outstripping supply. Even in markets like Mumbai, Delhi, Bengaluru, and Kolkata that have traditionally had a healthy pipeline of such units, consumers are increasingly opting for projects that boast amenities that are on par with those offered by international developers. This change in consumption patterns has prompted Indian real estate developers to launch new luxury housing projects that can cater to this burgeoning class of domestic investors.
Additionally, 2022 has been the year for vacation homes and plotted development schemes, as upper middle-class buyers venture into investing in second homes that are nestled away from the hustle and bustle of city centers. Taking cue from this new trend, leading Indian developers are investing heavily in developing gated projects in upcoming destinations like Sarjapur, Palghar, and even in towns surrounding major metros, so as to cater to the proliferating demand for better lifestyle spaces. Both these segments should continue to attract domestic consumers and investors, auguring well for further capital appreciation.
Even as the Indian real estate sector acts as an important driver powering India’s holistic development, the developer community will need to intensify their focus on upgrading construction and design standards to those offered in developed countries. This will require them to raise funds through additional avenues such as real estate investment trusts (REITs) and attract more Indians to actively invest in the country’s real estate economy. With REITs offering proportionate ownership of income-generating real estate assets, more Indian developers will have to establish their own REITs, educate investors on their long-term value generation potential, and seek more investments through this route. Not only will this bring in more foreign investments, but it will also tap into the country’s large population base to establish a sustainable financing model that will lead the Indian real estate sector to new heights in 2023.
(The author, CR Shivakumar is President (Elect) for NAR India.)
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