The post-Independence journey of real estate in the first few decades was non-eventful. The lack of proper planning and policies, coupled with severe fund crunch, proved to be a big road block in the growth of housing and urbanisation at large in the country. It was a daunting task to undertake planned urban development and provide shelter to millions of people due to the absence of a housing policy.
Whatever construction and real estate developments happened during the initial years; it was largely unorganized. In 1970, the Housing and Urban Development Corporation (HUDCO) was formed under the ownership of the Ministry of Housing and Urban Development for undertaking planned development. This was followed by the launch of the National Housing Bank (NHB) in 1988 as an apex regulatory body for the overall regulation and licensing of housing finance companies.
However, it was only after the liberalisation of the economy in 1991 that real estate development in an organised and planned manner picked up pace. Towards the end of this decade, India ushered in the shopping mall culture with the launch of the first shopping mall – the Ansal Plaza in Delhi. Today we are witnessing a mall revolution with over 300 malls and by the end of 2022, the number of shopping malls are expected to reach the 350 marks.
In 2005, a nation-wide city modernisation programme – the JawaharLal Nehru National Urban Renewal Mission (JNNURM) - was launched by the Ministry of Housing & Urban affairs for the overall urban development in the country. For this mission, an investment of USD 20 billion over 7 years was earmarked to fast-track planned development of 63 identified cities. In the same year, a landmark reform was made to channelise foreign funding for the capital-intensive real estate sector. As part of this reform, 100% FDI under automatic route in townships, housing, built-up infrastructure, and construction development projects was allowed.
The reform-oriented progressive Modi government has put a big focus on real estate, housing and infrastructure as major drivers of the economy and has resorted to a series of far-reaching reforms, putting the beleaguered sector on the path of long-term sustainable growth. In 2016, two major inter-related reforms of demonetisation and an amended act for prohibition of benami property were undertaken to clean up the opaque real estate sector, which was plagued by massive circulation of black money. These two initiatives checked real estate transactions where unaccounted money was involved, leading to artificial spurt in property prices, making real estate/housing out of the reach of the common man.
The deployment of unaccounted money in real estate transactions was a big deterrent for foreign investors. As such, the benefits of the 2005 policy of allowing FDI in real estate, could not be realised. However, demonetisation and Benami Transaction Prohibition Act helped bring transparency in the sector. Further, to fast-track foreign investments, the Modi government liberalised FDI in the real estate and construction sector by relaxing norms for built-up area, capitalisation, and all kinds of distinctions between various kinds of foreign funding were done away with to help developers have better access to FDI. Foreign investment in Alternative Investment Funds was also permitted to give a boost to FDI.
In a related move, the government introduced the Real Estate Investment Trusts (REITs) by removing all kinds of hurdles like capital gain tax and dividend distribution tax. These new instruments of investment pooling have proved to be a lifeline for fund-starved developers. This new investment vehicle has not only helped channelise institutional investments but retail investments as well. The salutary effect of FDI reforms on the fund flows to the capital-starved real estate sector is there for everyone to see. According to the Colliers-Ficci Report, foreign investments in real estate jumped to USD 23.1 billion between 2017 and 2021. The spurt in FDI can be gauged from the 2022 data: in the first six months of this year, FDI to the tune of USD 3.4 billion has flowed into the real estate sector.
The biggest ever real estate reform of post-Independent India undertaken by the Modi government has been the Real Estate Regulation Act (RERA) enforced in 2017 for regulating the sector. The Act ensures fair and transparent property transactions with effective redressal mechanism, thereby protecting the interests of property buyers and boosting the confidence of investors. Over the past five years since RERA came into force, the confidence and sentiment of home buyers and investors have gone up, making real estate much more attractive as an asset class.
With all these key reforms in place, the Modi government embarked on the flagship mission of ‘Housing for All’ in 2015 to provide shelter to all by way of concrete houses. Fully realising that affordable housing was the key to meet the severe shortage of housing, the government focused on it, taking effective demand and supply side measures. Under the Pradhan Mantri Awas Yojana (PMAY) - Urban , affordable housing developers were provided income tax holiday to boost supply, and home buyers were given credit-linked subsidy of up to 2.67 lakh on purchasing an affordable house, besides providing them income tax incentives on home loan.
The landmark GST reform initiated by the government helped boost affordable housing as GST on it was reduced to merely 1 percent. The government’s commitment to boost affordable housing is clearly reflected in large budgetary allocations. In the 2022-23 budget, Rs 48,000 crore was earmarked for affordable housing. In the light of this, affordable housing programme has shown significant results. As many as 11.4 million houses involving central assistance of Rs 1.86 lakh crore have been sanctioned so far. Nearly 9.29 million houses have been grounded for construction and 5.44 million have been completed.
The same year, the twin Smart Cities Mission and AMRUT (Atal Mission for Rejuvenation and Urban Transformation) programmes were launched. An allocation of Rs 1 lakh crore was made for the development of 100 citizen-friendly and sustainable smart cities. By August 2022, out of the 7831 tendered projects worth Rs 1,91,337 crore, work on 4161 projects worth Rs 68,155 crore has been completed. AMRUT Mission was launched to facilitate ease of living for citizens in 500 cities by providing tap connection and sewer connection. Last year, AMRUT 2.0 was launched to provide clean water for all urban citizens and to increase sewerage coverage.
Since infrastructure development holds the key to real estate growth, the Modi government has given a big thrust to it. It has formulated a National Infrastructure Pipeline (NIP) with a projected investment of 1.1 lakh crore to provide world-class infrastructure. In order to provide connectivity boost to real estate, a major thrust is being given to development of highways, rail, metro and airports. Between 1950 and 2015, the nation built only 4000 kilometers of highways, taking the total length to 77000 km in 2015. Now, it is on course to cross 1.8 lakh km by 2025 as the pace of construction went up to 37 km per day in 2020-21 against 12 km per day.
The government’s clear thrust to highways is also evident from record budgetary allocation of Rs 1,3,4015 crore for NHAI and Rs 64,573 crore for roads and bridges in the 2022-23 Budget. The rail connectivity record of the Modi government is equally impressive. The nation had only 10,000 km of rail track in 1950, which rose to 63,000 km in 2015. By March 31, 2020, Indian Railways had a running track length of 99,235 km. Post-Independent India saw the advent of metro rail in 1984 in Kolkata. Today, there is a combined length of 753.80 km of metro systems in 13 cities of Kolkata, Delhi, Bangalore, Gurgaon, Mumbai, Jaipur, Chennai, Kochi, Lucknow, Hyderabad, Noida, Ahmedabad, and Kanpur, making it the fifth largest operational network in the world.
Along with highways, rail and metro connectivity boost, air connectivity has also contributed significantly to the real estate growth. As many as 68 airports have been operationalised for regional connectivity and the government has set a target to operationalise 100 airports by 2024.
It is the result of all these reforms and policy initiatives, including the adoption of the latest technologies related to construction, marketing, and customer relationship, that, today, the real estate sector has emerged as highly regulated, resilient, and growth-oriented, and especially the green initiative has made the growth sustainable. This is clearly evident from the fact that despite massive disruptions caused by Covid-19, real estate has made a smart and quicker recovery.
Residential real estate sales, according to Knight Frank are at a 9-year high with luxury housing sales doubling in H1 2022, as per Anarock. With the mortgage market set to double to USD 600 billion in 5 years, the residential market has bright growth prospects says Deepak Parekh, Chairman, HDFC. The office market has also shown robust recovery with 25.3 msf of office transactions, registering YoY growth of 107%, according to a Knight Frank report.
Anurag Mathur, CEO, Savills India, projects a record gross absorption of about 50 msf in 2022.The retail real estate has also shown impressive performance, with good growth prospects. According to Anarock, new mall supply is set to double to 10.15 msf in 2022 in Tier 1,2 and 3 cities in 2022, twice that in 2021.
With the landmark reforms and all the enabling policy measures, real estate has emerged as a much sought-after asset class for investment. The Real Estate Investment Trusts (REITs) besides attracting foreign institutional investors in a big way, has opened new avenues for safe and profitable investment with sound returns for retail investors. The newer asset classes of Co-Living, Co-Working, Senior Living, Logistics, Warehousing, and Data Centres are giving much better returns to investors. Further, revamping of reforms like ensuring effective implementation of RERA, introduction of Single Window Clearance, rationalisation of GST, strengthening IBC Act, will help make real estate all the more attractive.
Against this backdrop, the Modi government’s push for ease of living and ease of doing business, and the resolve to make India a 5 trillion dollar economy by 2024-25 by strengthening existing reforms and taking up new reform-oriented policies, will put real estate and housing on a healthy and sustainable growth path.