Future of Indian Real Estate

A Fire-Side chat was held on 5th April’22 chaired by Mr. Abhishek Lodha, Managing Director, Lodha Group and Mr. Chanakya Chakravarthi, Managing Director, India, Ivanhoe Cambridge. The session was moderated by Mr. Piyush Gupta, Managing Director, Capital Markets and Investment Services, Colliers India. 

The theme of the discussion was how Real Estate Industry in India can achieve depth and come on a global footprint given strong fundamentals across Asset Classes. The panelist discussed their views on the current state assessment, and the challenges in execution and provided an insight into emerging opportunities in the sector. The discussions encompassed the housing sector, commercial, and industrial sector, the importance ESG framework, Capital availability commodity price inflation, and geopolitical challenges.

With just 300,000 housing units selling in the top 6 cities compared to over a million in advanced economies, the Indian housing sector has the potential to expand significantly. 

The housing sector is performing at a sub-optimal capacity due to fragmented industry and disguised credit that was available until the NBFC crisis started in 2018. Hence, with the growth of the economy and progression of the country to a middle-income nation, the demand for the housing sector has a huge potential for growth in the current decade. The industry has gone through a structural change and hence current buoyancy in the Housing Market is likely to continue for the long term.  

While the inflationary pressure persists due to the rise in prices of the commodities, the accommodative stance of the central bank aids in the cheaper credit supply and growth of the economy. While the rise in commodity price is expected to raise the market price of housing, the price increase at levels below the wage increase is expected to maintain sustainable demand for housing. The Government has continued with its policy favoring growth.

With increased emphasis on the digital economy, digital infrastructure such as data centers is expected to bring new opportunities for investment. 

The construction sector is among the largest emitter of CO2, and carbon neutrality is a key business priority for companies. ESG is thus expected to be a valuable addition to businesses and companies. Climate change and a carbon-neutral economy is driving changes to adopt ESG. ESG is no longer ‘nice to have ‘, but rather it has become a ‘must-have’ for companies. ESG framework is expected to drive investments in the future.

Institutional investors have started expressing greater confidence in the Indian economy and believe India could become the next Asian Tiger. While disruptions like RERA and Covid presented immense challenges to the housing industry, it has presented themselves with an opportunity to deepening of the market and formalization of the economy.
 
While institutional investors express confidence about the economy, they remain wary of the industry and its ability to deliver on the execution. Promises made while raising capital need to be fulfilled at the time of delivery.  An environment of ‘trust’ needs to be created to attract and retain foreign capital in the real estate market. 

While ‘yield’ is an area of interest to investors, ‘liquidity’ remains an area of priority for an investor. Systematic and institutional investors are willing to forego 100-200 basis points in return for liquidity. While over 70% of the real estate market is residential, commercial and industrial real estate remains the preferred choice of investment for investors.  

Among the emerging economies, India remains a destination of choice for investors. With an alternate source of capital getting available domestically, cost of borrowing is expected to decrease for the developers. 

It is envisaged that the next 10 years could be the best ever seen for Indian Real Estate Industry.



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