21 May Why right now is now a good time to invest in Indian Real Estate
The year 2020 is now synonymous with the pandemic and all of its associated challenges and problems around the world. And for real estate in India, last year can best be described as ‘transformative’.
When the pandemic first hit and the lockdowns kicked in, sales plummeted by around 70% in the real estate sector. We saw rapid digitisation within the real estate industry, as well as accelerated consolidation due to weaker businesses failing and stronger ones showing staying power. All of this together transformed an industry that was long considered solid in India.
Last year’s challenges mean 2021 is the time to invest in Indian real estate
Despite this hugely dampened real estate market during the first half of 2020, by the end of the year sales had shot up again. In fact, sales records that had stood since 2013 were being broken. Property investment registrations rose sharply, with previously undecided buyers taking the plunge.
There is now a marked return of demand for affordable housing. After all, more people are working from home and are freed from the absolute necessity of living very close to their offices, which are usually in the city centre. Urbanisation is still rising, of course, but there is a corresponding need for affordable housing across a wider area.
Currently, the Indian real estate sector is worth around US$120 billion. Experts estimate that by 2040 the sector will be worth at least US$650 billion. This is a five-fold increase, which will double the sector’s contribution to India’s gross domestic product (GDP). For now, the demand for affordable houses far outstrips the supply. According to recent estimates, urban areas need around 10 million more housing units to meet this demand.
Central Government recognises the importance of the sector in India
Real estate is absolutely key to India’s economy, employing around 55 million people currently. It also keeps a further 200 industry sectors going, all of which is recognised by the central Government in its legislative changes.
Addressing this major shortfall in urban and city centre affordable housing, the Government is encouraging various development programmes. One of these, and probably the highest profile programme, is called The Smart City Project. Its remit is to create 100 smart cities across India as part of a long-term plans to boost the economy.
For investors, it’s important to note that there has been an annual increase of 11.6% in returns from the housing market in ten of the biggest Indian cities over the past decade. This is according to the Housing Price Index run by the Reserve Bank of India (RBI). These figures underline the resilience of the housing market in India, and that returns have withstood all of the volatility of the past decade. Even during the pandemic, it’s clear that the sector shows no signs of weakening.
Shifting consumer demands are impacting the sector positively
During the most difficult times of the pandemic, the real estate market was relieved by a reduction in stamp duty fees by state Governments and helped by low interest rates. Tax relief measures have also improved the market sentiment significantly.
COVID-19 is also responsible for shifting consumer demand from predominantly rental properties towards home ownership. Before the pandemic, most of the city centre and urban population were renting, but the uncertainty surrounding jobs, the economy and the future prompted many to move back to their parent’s homes.
Now that working from home is adopted, accepted and part of daily life, these people are looking to buy affordable homes with space to work. However, investors and property developers know that while rentals have decreased since the start of the pandemic, now that vaccine rollouts are imminent, there is an upturn in demand for affordable rentals too.
Special Economic Zones (SEZ) are being introduced in cities across India, including Chennai, Pune and Bangalore. These ill further increase demand for housing for people to either rent or buy.
Major trends in Indian real estate sector for 2021
As we can see, there are many reasons why investing in Indian real estate is a sensible option for those who want to be part of a growing industry sector. Returns have proven to be resilient, and while the pandemic is not yet over, we can finally see a light at the end of the tunnel.
The main trends that will define the sector for the remained of 2021 include:
- Vaccination rollouts
Sentiment dictates the housing market perhaps more than any other. When the first vaccines were announced in late 2020, the world heaved a sigh of relief. And this more optimistic view is having an impact on real estate in India too. The vaccination rollouts will continue to have a positive market sentiment by providing more sectoral certainty.
- A shift towards community living
Lower taxes along with the obvious benefits of living in developments that offer the infrastructure and facilities needed is shifting consumer sentiment towards these areas. Following the restrictions imposed by COVID-19 lockdowns, more people are choosing to live in purpose-built development areas that have offer the benefits of medical, health and retail facilities within them.
- Surge in investor activity across younger generations
More millennials are taking a serious interest in property investment and buying since the pandemic started. In many ways, COVID-19 has encouraged the formation of a completely new set of buyers. While younger people previously failed to see the benefits of investing in property due to the perceived lack of returns, post-pandemic these sentiments are changing.
People aged between 30 and 40 are realising the financial benefits of choosing to pay the Equated Monthly Instalment home loan repayment (EMI) rather than losing money in rent. This allows them to build up their assets with property rather than failing to do so by renting. As home loan rates have plummeted since the pandemic started, this has brought EMIs down to the same level of rent payments, making the decision even easier.
- Changing consumer demands
Now that working from home is a reality, people are realising they need and want more space in their homes. Having everyone at home trying to work and do schoolwork has shown that space is a premium, and this is reflected in the surge in demand for flexible home space between August and December 2020.
Indian real estate came through 2020’s transformation intact and stronger than ever. There has never been a better time to invest in Indian real estate, for non-resident investors and domestic buyers alike.
When the vaccination rollouts really kick in and the economy reacts accordingly, it will be far better to be part of the recovery than left watching from the side-lines.