The Future of Indian Real Estate Market

Come next decade, Indian real estate landscape is expected to be dotted with SEZs, international standard warehouses and specialized industrial spaces. Large integrated developments can become a norm among the working population. The Indian Property Market is fast going through a learning-curve. Rising interest rates have impacted the credit availability to the sector, global economic conditions seem to have subdued the demand from investors and occupier’s alike, Indian real estate stocks are down by more than 50 per cent from their year long high and the once soaring real estate values appear to be plunging. This, no doubt is the reality. Nonetheless, it is hoped that this is a transitory phase and the picture that would emerge once the churn is over will be an embodiment of permanence that is bound to happen as the sector continues to move along a high growth curve.

The economic liberalization in the 1990s and the ensuing information technology revolution have been instrumental in giving the real estate market its present form. MNCs-led demand for quality office space resulted in modern buildings springing up in new suburban locations. Increased job creation and rising disposable incomes coupled with lower interest on housing loans, had in turn fuelled demand and affordability for residential space. The change in attitude and the spending habits of the consumers led to an increase in consumption and demand for retail malls.

Relaxing the FDI regulations for the real estate sector opened the floodgates for foreign capital inflow into realty sector. The much-required capital in the last few years has facilitated widespread development of residential, office, retail and hotel space in the country. It has also been instrumental in organizing the market to a large extent and bringing it closer to real estate markets in other developing countries around the world. We are excited about these developments as the growth that we witness today is a sign of the emerging far-reaching and long-term trends that will drive robust growth for the sector in the years to come.

Foremost would be the institutionalization of the sector and the definite change in the ownership structure. Instead of individuals, private equity funds, hedge funds, REIT funds, insurance companies, pension funds, banks and other financial institutions would own, invest or manage real estate assets in office, residential, hotels, industrial, retail space etc. Public sector organizations like Life Insurance Corporation of India, UTI, Public Provident Fund, other pension funds of central and state would hopefully become active investors in the real estate industry.

This will also lead to sophistication in the financial structuring of real estate investments. They will provide access to capital, both debt and equity capital from public and private sources. Apart from offering an exit route for the developers to revolve funds and improve their margins, REITs will also allow individuals investors to be a part of the real estate market.

On the product side, there will be further advancement in construction management and project management techniques in order to optimize costs, meet construction timelines and achieve environmental and health and safety guidelines, intelligent, energy efficient green buildings will become the norm of the day. Property and facilities management services will also undergo a facelift. The provision of a good working and living environment as well as the enhancement of the asset lifespan will be key considerations and these services will be outsourced much more to firms specializing in these functions.

Real estate activity will become more widespread and will take many smaller towns and cities in its fold. Improved infrastructure, the potential of untapped markets, increased access to capital together with the saturation and spiraling cost of metros will play a vital role in promoting new growth centers. Infrastructural projects including roads, airports, ports and inter-city connectivity will witness increased private sector participating and evolve as real estate play. This will significantly augment the availability as well as the quality of these services in the country.

Rental housing as well as rented office space can become common as corporate entities will look at reducing their fixed asset liabilities, change in ownership structure would also bring in standardized, accepted practices for property valuations. Property transactions will become easier due to availability of research data, computerized land records and simpler processes for transfer of land titles and taxation. Hopefully, all these would be the prerequisites for evolving transparency and uniformity in the market. After witnessing periodic highs and lows, the interest rates and real estate process will undergo a rationalization and will finally be market driven. The above listed trends are some key real estate events that are most likely to take shape in next decade.