What ‘Make-in-India’ Means for Real Estate Sector
‘Make in India’ is an ambitious campaign launched on Thursday (25th September) by the country’s Prime Minister, Mr Narendra Modi. The campaign was launched with an intent of turning India into a global manufacturing hub. The campaign seeks investments in 25 sectors across the country from foreign investors as well as home grown businesses. Some of the key industries in focus include construction, automobiles, tourism and hospitality. The country’s real estate sector, which is a part of the construction is expected to be significantly impacted with the investments.
Here is a small insight of what the campaign means to the Indian real estate sector.
The Indian construction industry contributes more than 10 per cent to the country’s GDP. The industry sees sustained demand from the real estate and industrial sectors. While 50% of the demand for construction activities comes from the infrastructure sector, the remaining demand comes from industrial activities, residential and commercial development.
An investment of about $1,000 billion has been projected by the end of 2017 in the infrastructure sector, out of which about 40 per cent will be flowing in from the private sector. About 45% of the total investments into the infrastructure sector is expected to be funnelled into construction activity while 20 per cent will be used to modernise construction industry.
What it means for the real estate sector
The huge investments expected to come into the infrastructure sector is expected to help the real estate sector in a big way. Present levels of urban infrastructure are inadequate to meet the demands of the existing urban population. According to a 2012 census, India has currently an estimated housing shortage of 18.8 million units in urban areas and estimated 47.4 million units in rural India. The urban areas in existing cities will have to be re-generated while new, inclusive smart cities have to be created to meet demands of increasing population and migration from rural to urban areas.
Policies and funding support
There are already several policies laid down by the government over the years to help growth in the construction, infrastructure and real estate sectors. Some of the recent policies include the introduction of REITs and INVITs to improve investments in the sector. The government has also created new FDI policies to improve foreign investments in the sector. Various incentives are provided to encourage investments in the construction and the infrastructure sector.
The investment policies for the construction sector also several measures involving modernising construction equipment, utilisation of technology for smart and sustainable cities, utilisation of technology for affordable housing and skill development of construction sector workers.
Sumit Jain, CEO – CommonFloor’s Opinion
As Mangalam Spacecraft entered the Mars orbit, another glorious page was added in the Indian history. While the nation was still celebrating this grand success, Modi unveiled his ‘Make-in-India’ campaign on his visit to US. With a striding lion made of cogs as the logo, it clearly symbolises the aim to turn the country into a global manufacturing hub.
100 per cent FDI is allowed for Industrial Parks. This is a great move as it will open growth channels for industrialists, both domestic and international. This will surely help large industrial projects like DMIC. Further, with smoothening of business processes, India is slated to become a manufacturing and industrial hub in times to come.
Real Estate in India is mainly a cycle of 7 years. Interestingly, this is the first time that government has clearly stated the growth statistics. Between 2005-08, the real estate sector grew by about 30% annually before slow down due to a 2008 global meltdown. It grew by about 8% between 2009-11 and 6.5% in 2012-13.
Taking the base year as 2006, the seven years cycle has now come to a point from where the realty market will just see an upsurge in demand and supply. The rationale in taking 2006 as base year is that this was the year when the realty market grew at a rapid pace with increased demand for residential real estate. Ever since the opening of the Indian equity markets to foreigners, FII investments have steadily grown. And in 2006, the FII flows to India was very high. The prices shot up and got doubled. Over the period of 7 years with strong demand and rise in capital values, the market started stabilising itself leading to correction in prices. Considering all these, this could be the best time to invest in real estate. Further, the realty market is also expected to grow to approximately USD 140 Billion by 2017.
The plan to launch a new urban development mission will also promote inclusive growth in the coming years. Thus, real estate and urban infrastructure will definitely get a shot in the arm. With the euphoria of Modi-fied India, the nation is already seeing ‘ache din’.
That’s not all! The much-needed Real Estate Regulation & Development Bill will also see the light of the day. In addition to protect the interest of consumers, it will also promote transparent transactions in the sector. All these measures will certainly set the momentum in real estate activities.
