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India’s Coming Real Estate Surge

 5 min read / 

It is a well-known fact that India is a populous country;  it is the second most crowded country after China, home to approximately 17% of the global population with 1.3bn people as of the start of 2018. India is a relatively young nation compared to the rest of the world. According to Statista, the median age in India right now is around 28 years, compared to China which has a median age of 38 and faces productivity issues owing to an ageing population. India too will encounter this problem albeit it will be approximately 20 years away. Whilst it is true that India has a significant rural community, it is important to note that the country is also home to megacities.

As of 2016, India was home to 5 megacities :

  1. New Delhi
  2. Mumbai
  3. Kolkata
  4. Bengaluru
  5. Chennai

Hyderabad and Ahmedabad expected to join the list by the year 2030.

An Indian Future

What is interesting about the Indian population is its trajectory and the implications for urban real estate. The Indian population is growing at a rate of 15m per year. To put this into perspective, the population of its neighbour, Sri Lanka, is only 21m. India is gaining the equivalent of a small country every year. At this rate, the population of India is expected to peak at 1.7bn in 2060. The nation, however, would have already dethroned China as the world’s most populous country by around 2024.

In addition to becoming the world’s most populous country, India will also be home to one of the world’s largest working population with the median age of its residents falling within the working-age bracket between the years 2030 and 2060.  In fact, India will be one of the youngest countries in the world. This puts India in a strategically advantageous position regarding economic productivity on a global platform over more advanced economies like Japan which have issues with ageing populations.

This massive growth in population will supplement the ballooning Indian urban real estate market. Indian towns and cities will experience an influx of people in tandem with in-situ population growth. Delhi, for example, will receive 9.6m million people by 2030 according to the UN World Cities Report published in 2016. As a consequence of this rural to urban influx, by the year 2030, the UN predicts India to be home to 7 megacities.

Infrastructure Expansion

Real estate consultancy firm Knight Frank reported a seven-year low in Indian real estate property prices in 2017. However, this is a minor setback attributed to demonetisation (which, coincidentally had positive connotations within the digital banking industry); transactions entail the usage of large volumes of cash which was hampered due to the recall of 500 and 1000 banknotes. However, with India’s growing population forecast and surge in urbanisation, an opportunity for investors to make gains off of the Indian real estate sector has presented itself. It is reported that by the year 2030, the Indian real estate and construction sector will be the second largest on the planet.

A KPMG report published in 2016 on urban real estate in India gives a comprehensive outlook on the Indian real estate. According to the report, India’s urban GDP will be 75% of the country’s total GDP by 2030. This will be the result of a series of pro-urban development policies and reforms. One of the most significant government programmes is the Pradhan Mantri Awas Yojna (Housing for All) initiative which is a government-led project to ensure housing for all its citizens by the year 2022. The project entails an estimated construction of 110m housing units spread between rural and urban areas. Crucial further government programmes include the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Smart Cities initiative geared towards urban infrastructure development with investments of $7.4bn and $7.2bn respectively.

Adjacent industries like housing finance, banks, paint, cement, brick and steel will stand to benefit from Indian urbanisation. Morgan Stanley estimates that a 9% compound annual growth rate in the volume of property will mean a corresponding increase in cement demand with an annual growth rate around 6%. Supportive government initiatives like the AMRUT will supplement the growth of the construction industry and research forecasts steady growth in the years to come with the value of the sector expected to reach $738.5bn. BMI research forecasts an average increase of approximately 6.2% between 208 and 2027.

Investment & Opportunity

Investment in the real estate sector has seen significant growth, reflective of bullish sentiments on Indian real estate. The Indian real estate sector has seen an increase in private equity investments of 15% last year, reaching a value of $800m. With the rise in Indian entrepreneurial and tech hubs like Hyderabad and Bangalore, there has been an increase in demand for office space. It is also reported that private equity investments in the IT office space have increased by approximately 150% over a three year period between 2014 and 2017. It is also estimated that the government will ensure completion of housing units across the country during this year in line with the goals outlined by the Housing for All initiative.

An opportunity for investors to make gains will be heralded via the Real Estate Investment Trust (REIT) which is expected to IPO in the first quarter of this year. A Blackstone Group backed firm the Embassy Group is planning on India’s first REIT which open the doors for investors of all levels to invest in the Indian property market. The Securities and Exchange Board of India (SEB) had already given its approval for the REIT platform. It is expected to create an investment opportunity worth $19.65bn in the Indian real estate market over the coming years. Due to forecasted urban growth, it is quite likely that one will witness an increase in REIT based investments from both foreign and local investors.

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