Global Headwinds, Local Strength: The Resilience of Indian Real Estate

The Indian real estate market has demonstrated remarkable resilience in the face of global challenges such as geopolitical uncertainties, economic turbulence, environmental issues, and the COVID-19 pandemic. This resilience, coupled with robust demand, regulatory reforms, technological advancements, and a growing economy, has enabled the sector to weather the global economic storm.

According to a report by the Indian Brand Equity Foundation, the Indian real estate market is poised to reach a market size of US $1 trillion by 2030, contributing 13% to the country’s GDP and expanding to US $5.80 trillion by 2047, contributing 15.50% to the GDP. The significant growth underscores the sector’s potential and pivotal role in shaping India’s economic landscape.

India’s demographic shift towards urbanization offers real estate investors and developers a significant opportunity. The number of Indians living in urban areas will likely grow from 461 million in 2018 to 600 million by 2030, leading to a subsequent surge in the demand for residential properties and driving the demand for commercial and retail spaces, especially in urban pockets.

Despite challenges such as high mortgage rates and property prices, the residential property market in India witnessed a record high of US $42 billion in home sales in the fiscal year 2023, marking a substantial 48% year-on-year (YoY) increase. The real estate market in India is projected to expand to US $9.30 billion by 2040 from US $1.72 billion in 2019.

The physical retail landscape in India is also set to grow significantly, with nearly 41 million sq. ft of retail developments expected to be operational between 2024 and 2028 across the top seven cities.

This projected growth, driven by urbanization and increasing consumer spending, presents a significant opportunity for real estate investors and developers. Gross leasing in India’s top seven markets surpassed the 60 million sq. ft mark for the first time in 2023, reaching 62.98 million sq. ft in the year, showing a substantial 26.4% increase compared to the previous year.

A real estate services company, Savills India, predicts that the demand for data centers will increase by 15-18 million sq. ft. by 2025, which indicates a strong growth trend. On the other hand, office absorption in the top seven cities in 2023 stood at 41.97 million sq. ft., with a gross leasing volume of 62.98 million sq. ft.

Construction is the third-largest sector in foreign direct investment (FDI) inflow, a testament to the global confidence in the Indian real estate sector’s potential. FDI in this sector (including construction development and activities), stood at US $60.07 from April 2000 to December 2023.

Foreign investors pump around US $4 billion yearly into Indian real estate, with a 20% YoY increase in foreign inflows in 2023. This influx of foreign capital boosts the sector’s growth and signals its attractiveness to international investors.

Private Equity (PE) investments have also surged, with investors recognizing the market’s long-term growth prospects. PE inflows into India’s real estate sector stood at US $4.2 billion in 2023, up from US $3.4 billion in 2022.

These investment inflows have provided the necessary capital for infrastructure development and project completion, further strengthening the sector. By integrating technology innovations in construction, property management, and marketing, the industry optimizes efficiency, saves costs, and prospers in the changing global market scenario.

PropTech solutions, including big data analytics, blockchain, and artificial intelligence, are not just buzzwords but practical tools reshaping how real estate is bought, sold, and managed. Virtual Reality and Augmented Reality technology have improved the client experience, enhancing the industry’s appeal to tech-savvy investors.

These have revolutionized the real estate industry’s efficiency, creativity, and sustainability. According to a PwC analysis, the PropTech market in India is anticipated to expand at a CAGR of 16% between 2021 and 2025.

The Indian Green Building Council reports that India is home to over 7.17 billion sq ft of green building projects, making it one of the top countries in the world for sustainable construction. Integrating sustainable building practices and green technologies will help the environment and satisfy the growing demand for ecologically sensitive green structures.

The government has been a critical driver in bolstering the real estate sector in India. A series of measures, including the Real Estate (Regulation and Development) Act, Benami Transactions Act, boost to affordable housing construction with Pradhan Mantri Atal Awas Yojana, interest subsidy to home buyers, change in arbitration norms, service tax exemption, Dividend Distribution Tax exemption and Goods and Services Tax (GST) among others, have given a significant boost to the sector.

This robust government support underscores the sector’s stability and signals its growth potential, which can strongly incentivize potential investors.

Regulatory reforms, such as RERA in 2016, have significantly enhanced the transparency and trustworthiness of the Indian real estate industry. These reforms have increased accountability and openness, guaranteeing timely project completion and the protection of buyers’ interests. They have also boosted investor and homebuyer confidence, resulting in a more stable market and making the sector more attractive to potential investors.

GST has simplified the tax system and decreased the total taxes associated with real estate transactions. The Insolvency and Bankruptcy Code, which offers a process for resolving bankruptcies and safeguarding creditors’ interests, has reinforced the industry’s growth prospects.

Indian real estate is poised to remain a pillar of strength in the global landscape with its continued focus on transparency, sustainability, and inclusivity. However, to drive the next growth phase, the sector must continue to adapt to changing consumer preferences and global trends, ensuring it remains competitive and resilient while embracing sustainable and inclusive growth. The capacity to adapt and think innovatively will remain key.

Srinivasan Gopalan, Co-founder & Chairman of ArisUnitern RE Solutions Pvt Ltd and Co-founder of Aris Infra Solutions Pvt Ltd.

Srini has more than 25 years of experience of which over 15 years is in the real estate sector. In his roles as CEO, COO & CFO of leading real estate developers in Bangalore & Mumbai (Ozone Group and The Wadhwa Group). Srini has been at the forefront of leading the Real Estate development business across all asset classes of Residential / Commercial / Retail & Integrated Townships.

He is a notable speaker and thought leader on various platforms for the RE Industry.
In his earlier avatar, Srini has run businesses in other industries like agrochemical (Gharda Chemicals), dot com (Chembourse.com), and heading a knowledge partnering company to the global pharma industry (ROW2 technologies).