Indian realty poised for a turnaround in development

India’s real estate sector has come a long way with forward and backward linkages of approximately 262 ancillary industries. Knight Frank analysis estimates that 1% growth in real estate development contributes to 8% growth in the steel and cement production. After agriculture, real estate sector is one of the highest employment generators in the country. It is expected to expand to $5.8 trillion by 2047, contributing 15.5% to the GDP from an existing share of 7.3%, according to a joint report by Knight Frank and Naredco.

On the residential front, residential demand is up at 82,612 units, 12% higher in YoY terms and 7% higher compared to the preceding quarter. Supply levels inched a high at 85,549 units and developers continued to launch new projects in anticipation of the surge in demand. However, on the flip side, affordable housing is posing formidable challenges due to hike in land values, construction and labour cost. Under PMAY-U, the government had sanctioned 1.19 crore affordable housing units with the cumulative budgetary allocation at Rs4,011billion during 2016-2024BE.

As regards commercial space absorption, the third quarter alone witnessed 13.2 million sqft of leasing activity across top six cities, according to Colliers survey. Although technology sector continues to drive the demand with a 25% share in YTD leasing, demand is now more broad-based spanning across sectors.

Retail leasing witnessed an uptick of 24% Y-o-Y to touch 2.9 million sq. ft, a rise of 15% compared to H2 2022, says CBRE survey. Fashion and apparel retailers dominated the space take-up by contributing about 34% share in total absorption during H1 2023. Other prominent categories that dominated absorption included food & beverage (~15%), along with homeware and department store categories (~14%).

On the warehousing front, the growth of Grade A developers in the warehousing sector has been significant and the share of Grade A stock across the top eight cities is up from 35% in FY 2020 to 40% in FY 2023. The warehousing stock is likely to witness a potential demand for 159 million sqft by 2047.

With the supply chain disruption, India’s rapid strides on multiple fronts as a lucrative investment destination has catapulted the manufacturing in the economy. The sector is likely to contribute 32% to the country’s economic growth.

REITs have emerged as a major driving force in revitalising the real estate industry of India, according to Knight Frank research. The advent of REITs has infused essential liquidity into the market, enticing both local and international investments, thereby fostering progress and advancement of the real estate sector. Through their methodical strategy of pooling resources and investing in revenue generating properties, REITs have offered investors a convenient and varied path to engage in the real estate domain. This has also played a role in increasing transparency and elevating the standards of corporate governance besides offering an exit to real estate developers that are into building projects involving a long gestation period and huge capital expenditure.

Yet another significant development is PE investments in the Indian real estate sector. It steadily rose from US$1.1 billion in 2004 to US$5.3 billion in 2022. Projections for 2023 indicate that PE investments in Indian real estate are poised to touch US$5.6 billion, reflecting a YoY growth of 5.3%. In a further thrust to India’s meteoric rise in global arena, given that India’s GDP is expected to reach US$36.4 trillion by 2047, the surge in PE investments with the Indian real estate sector is projected to reach US$54.3 billion by 2047, signifying a CAGR of 9.5% spanning 2023 to 2047, says Knight Frank survey.

Promising avenues await PE investors within emerging sectors such as data centres, healthcare, hospitality, co-living and co-working spaces. These investments are expected to drive the India growth story in the coming years.