Synopsis: Indian Real Estate- Opening Doors (Part 2)

Scope of Indian Real Estate: Future Growth and Key Contributors

In the previous part of the article, we spoke about how Indian real estate has fared in the last decade and what makes our economy one of the fastest developing economies in the world. This article shall discuss the scope of Indian real estate going ahead and what shall lead to the growth trajectory.

Real Estate Contribution to GDP

It is estimated that the real estate sector shall contribute 13% to India's GDP by the year 2028, more than double its contribution of 6.3% in 2013. This shall lead the industry to a seven-fold growth, from USD 121 billion in 2013 to an estimated USD 853 billion by 2028.

Key Contributors to Growth in the Real Estate Sector

1. Overall Economic Growth of India

• As the economy gains momentum and grows rapidly, industries such as banking, financial services, IT & ITeS are expanding manifold.

• This has led to an increase in demand for commercial space required to accommodate the needs of these industries.

2. Rapid Urbanization

• More people are moving to urban India for better employment and income opportunities, about 10 million every year.

• This has created a requirement for 2 million affordable residential units to be developed annually.

3. Rise in Nuclear Families

• The concept of nuclear families is gaining ground, increasing the demand for multiple residential units.

• The average family size has reduced from 4.8 to 4.4 people, leading to an additional requirement of 10 million housing units.

4. Higher Income Levels

• With better opportunities and unstoppable economic growth, income levels are rising.

• The per capita income is expected to reach an average of USD 8,300 by 2028, three times the 2012 level of USD 2,800.

• This rise in income shall enhance purchasing power, boosting both the residential and retail real estate sectors.

Residential Housing Demand by 2028

• It is estimated that about 40-50 million new residential units shall be required by 2028.

• This includes the current deficit of 18.7 million units (2012 figure) and an additional requirement of 2 million units per year.

Segments in Residential Housing

Affordable Housing Segment

• Contributes 80% of the real estate sector, with 80-85% accounted for by affordable housing.

• Caters to lower-income groups and economically weaker sections.

• Homes in this segment range from USD 8,000 – USD 17,000 per unit with an average area of 250-650 square feet.

Mid-Income Housing Segment

• Includes housing units of 800-1200 square feet, priced between USD 17,000 – USD 170,000.

• Middle-class households are expected to triple by 2026, rising from 31.4 million to 113.8 million.

• The demand in this segment is expected to rise significantly to 3.5 million houses by 2028.

Luxury Housing Segment

• Refers to homes above 1,200 square feet, with no upper limit, costing a minimum of USD 170,000.

• India's HNI population grew by 22.2% in 2022 and is expected to triple by 2018, reaching 329,000 people.

• With the rising HNI population, 1.5 million luxury residential housing units shall be required in the next 15 years.

Growth in Commercial Real Estate

Besides residential housing, commercial real estate is a major contributor to the growth in Indian real estate. This includes spaces for office, retail, and industrial sectors.

Office Space Demand

• The IT & ITeS sector has occupied 52% of new office space since 2010.

• With 177% estimated revenue growth (2012-2020) and employee strength increasing from 2.4 million to 5.1 million by 2022, this sector shall remain a key consumer of office space.

• The banking and financial services sector absorbs about 16% of office space.

Retail Space Demand

• India's retail markets are growing at a CAGR of 8%.

• The demand for retail commercial space is expected to touch 275-300 million square feet by 2020.

Industrial Sector Growth

• The government is taking keen interest in promoting manufacturing reforms, with initiatives like the DMIC corridor.

• This shall create a surge in demand for industrial commercial spaces.

Conclusion

India is moving towards an era where real estate shall play a major role in the aggressive growth of the economy. With increasing urbanization, rising incomes, and evolving housing demands, the real estate sector is poised for significant expansion, making it one of the key drivers of India's economic future.