The Real Estate Sector and the Construction industry have long been seen as an engine of economic growth. The sector has forward and backward linkages to more than 250 different industries and is the second largest employer after agriculture in India.
Over the years India has emerged as a major outsourcing and offshoring destination along with enviable growth in the services sector. This has given rise to a huge demand for housing in the cities. These factors alone are enough to sell the India growth and returns story to global investors. With real estate reaching a point of saturation in developed countries and the demand and prices falling, global real estate players are looking at emerging economies such as India for tapping opportunities in real estate.
The Real Estate Sector and the Construction industry have long been seen as an engine of economic growth. The sector has forward and backward linkages to more than 250 different industries and is the second largest employer after agriculture in India.
Over the years India has emerged as a major outsourcing and offshoring destination along with enviable growth in the services sector. This has given rise to a huge demand for housing in the cities. These factors alone are enough to sell the India growth and returns story to global investors. With real estate reaching a point of saturation in developed countries and the demand and prices falling, global real estate players are looking at emerging economies such as India for tapping opportunities in real estate.
- Scarcity of developable urban land due to limited urban infrastructure and higher controls, resulting in inflation of prices
- Delay in construction project related approvals resulting in significant schedule and cost overrun in real estate and infrastructure projects
- Inflated cost of construction which makes affordable housing projects financially inviable for developers
- Multiple taxation on real estate development projects increases the overall cost of the project thereby impacting the affordability for buyers
- Limited access to long-term and low-cost funds, especially from banking channels including external commercial borrowings
- Significant shortage of skilled and unskilled workforce and resulting high cost of labour
What FDI inflows are expected to do for the real estate and construction industry is to give it a booster dose of funds which will speed up on-going projects, help fund new development projects, and above all what the industry requires now is considerable investment in R&D to minimise costs and develop new building materials so that the total cost of construction comes down and the same can be passed on to consumers in the form of affordable housing. The ancillary industries like cement and steel stand to gain in the form of new tech and renewed demand. In the coming years, the opportunities in the real estate sector will attract more global players to India and hence will help the industry to mature, become more transparent, improve management and adopt advanced construction techniques.
The years leading up to the Olympics hosted by China, China wanted to create the Birds Nest Stadium and related infrastructure across cities to show the world that they had arrived. This led to an unforeseen demand for steel, cement and other construction material and construction technology.
Drawing parallels, in India, Housing for all by 2022, Smart Cities, SEZ’s and Infrastructure development has been the focus of this government. This can be seen as an investment opportunity by foreign investors not only in the real estate sector but all its forward and backward linkages.
There is a significant supply gap in urban housing with an estimated shortage of 1.9 crore units, of which, 95.6 per cent is in Lower Income Group and Economically Weaker Sections. In another 2 years we would have had 70 years of independence. Although skyscraper cities are still a while away, there is opportunity and progress on the anvil with focus on creating smart cities and affordable housing. Private fund participation will remain key to turning these into realities.
