Realty sector contribution expected to be 13% of GDP by 2025
The Real Estate and construction industry are major contributors to the Indian economy, playing an important role in the country’s infrastructure development. With demand for housing on the rise, it is expected that the contribution of realty sector to Gross Domestic Product (GDP) can be doubled by 2025. From its estimated contribution of 6.3 % of India’s GDP of USD 1.8 trillion in the 2012-13 fiscal, it can be expected to touch 13% in 12 years time. For this to happen, there are various factors that the government needs to take into consideration like removal of bottlenecks in infrastructure, lowering of borrowing cost, and shortening the process involved in approvals.
According to estimates, the realty sector of India has a supply pipeline of approximately 3.6 billion sq ft that is awaiting completion in 2013.
It is estimated that a total investment of about Rs. 2,54,000 c
rore will be needed to tap into this supply quotient. The residential segment accounts for nearly 98% of this. It is expected that revenues worth Rs. 3,70,000 crore could be generated by way of this investment. Going by these figures, the realty supply would be about 8.2 million sq ft by 2025. Employment generated through the realty sector is estimated to increase from 7.6 million in 2013 to approximately 17.2 million by 2025.
Contributors of Realty growth:
The coming decade could see the real estate sector of India making rapid strides in growth. The growth is expected to be triggered from various factors like increase in urbanization, more demand for new houses, and the progress towards urbanization that Tier II and Tier III cities are expected to make. A large part of the growth of the real estate sector is expected to be contributed from the construction sector. Since the construction sector is associated with many other industries like cement, chemicals, steel, tiles, paints, fixtures and fittings etc, the income generated from all these industries would give a major fillip to boost the real estate sector. It would also enhance the involvement of the private sector in the growth of the country’s economy.
One of the key contributors to the growth in the realty sector is expected to be increased urbanization. It has been seen that more than 70 million people were added to the urban population of India between 2001 and 2011. With each passing year, an increased influx of people in various cities of India is being witnessed. Better employment opportunities and improved standard of living can be cited as the prime reasons for this phenomenon. Going by this trend, it is expected that there will be about 535 million people comprising the urban population by 2025. Thereby, there will be considerable demand for urban housing, invariably facilitating Real Estate Development.
Challenges to be faced:
However, the progress in the real estate sector is likely to be hurdled by various challenges. Some of the hurdles that could be faced are high borrowing costs, uneven pace of infrastructure development, and time-consuming and long-drawn approval procedures. Besides, it would also impinge on how the country’s economy performs in the next decade. Stagnation in economic growth could have an adverse effect on the realty sector as well. The projected 13% share of GDP by 2025 will depend on how the sector handles these challenges effectively. If all these challenges are ably dealt with, the realty sector will be one of the key contributors to the growth of the Indian economy in the next decade.
Contribution of Real Estate sector to the economy:
The Real Estate Industry can be considered as a cash cow of the Indian government as far as growth of the economy is concerned. It is regarded as one of the fastest growing sectors of the Indian economy. However, fluctuations have been seen in the sector of late. The real estate sector’s share of the GDP, which comes under the services sector, was reportedly 10.6% in 2010-11. However, a steep decline to 6.5% of the GDP was seen in 2011-12, and a further decline to 6.3% in 2012-13. There are various factors that can be attributed to this drastic reversal. The industry is facing a change in fortunes due to rising input costs and high cost of funds. Besides, the unavailability of cheap credit, increasing debt servicing levels along with declining foreign direct investment in the realty sector have brought about this reversal in trend. However, the saving grace during this phase was the contribution of the construction sector to GDP which was a constant at 8.2%. It is predicted that demand for real estate is set to surge at a compound annual growth rate of 19%, with Tier-I metro cities projected to account for 40% of this. This would propel the growth of the sector so as to achieve the GDP share of 13% by 2025.
