Will the Indian real estate sector deliver on the promise of Viksit Bharat?

Real estate and infrastructure are often considered the cornerstone of any economy and consistently serve as a barometer of a country’s progress. With India’s economic liberalization in 1991 and subsequent acceleration in GDP, the late 1990s marked a key growth phase in which the Indian real estate sector emerged as a key driver of all-round development, leveraging its multi-sectoral influence.

In India’s current dynamic economic landscape, the real estate industry plays a key role in driving significant growth and setting the ultimate roadmap towards achieving the collective goal of $5 trillion.

Also Read: Real Estate 101: Understanding Real Estate Types and Investment Opportunities

Given the important nexus of the Indian economy and the need to ensure a strategic course correction, the real estate sector has a huge opportunity to lead the era of sustained growth over the next 10-15 years. However, unlocking its full potential requires the creation of a supporting ecosystem – an ecosystem that makes real estate play a key role in increasing GDP value and increasing revenues, per capita income, which will help further growth in a self-sustaining cycle due to ever-increasing consumption.

Positioning real estate as a focal point for economic growth

As is the case with other major developed economies, including China, Korea and Japan, where their economic boom has coincided with a sharp real estate trend, India needs to create an ecosystem that will build on the growth of the Indian real estate market.

The sector has the potential to become the country’s main economic engine. The overall impact of real estate on growth is also supported by the recent massive volume that coincided with strong quarter-on-quarter GDP figures. We continue to be on an upward trajectory as various reports highlight the current expected growth of the Indian real estate sector to USD 5.15 trillion by 2047, accounting for 17.5% of GDP from the current share of 8%.

Unlike other sectors, real estate’s impact goes beyond simple infrastructure development; is intertwined with many aspects of the economy. Therefore, policies to support economic growth should prioritize stability, transparency and efficiency in the sector.

Motivating homebuyers and developers through effective policymaking

One of the main catalysts for stimulating activity on the real estate market is the rationalization of loan interest rates. Lowering interest rates encourages potential developers and homebuyers to invest, thereby increasing both demand and supply. This not only drives the housing market, but also strengthens economic activity in related industries. Additionally, it allows current home owners to refinance on more favorable terms, freeing up capital for further investments.

Additional measures are also needed to increase the availability of affordable housing – making more policy changes to encourage greater participation in this segment is key for policymakers.

Rationalization of raw material costs – reducing price volatility

Raw material costs constitute a significant portion of overall construction expenses. By rationalizing these costs, policymakers can ensure that housing prices remain stable and affordable for a wider portion of the population. Implementing measures to streamline procurement, reduce taxes and duties, and promote sustainable practices can mitigate price fluctuations, thereby creating an enabling environment for both developers and buyers.

Multiplier effect on macroeconomic indicators

A thriving real estate sector provides the basis for strengthening various macroeconomic indicators. The most important of them is job creation, in this case real estate comes second only to the agricultural sector. The labor-intensive nature of this sector translates into employment opportunities, from construction workers to architects and urban planners.

In 2023, the real estate industry currently generates total employment of Rs 6.08 CR and the employment is expected to increase manifold in the coming 20 years. Moreover, ancillary industries supporting the real estate market, such as manufacturing and retail, are seeing a surge in demand, further improving employment prospects. Thanks to these allies, Indian real estate now directly and indirectly contributes 47% to the country’s GDP.

Wealth creation is another significant byproduct of a robust real estate market. As property values ​​increase, homeowners accumulate equity, thereby increasing their net worth. This newfound wealth can be used for further investment or consumption, thereby stimulating economic activity.

Moreover, the dynamically developing real estate sector attracts foreign investments, introducing additional capital into the economy and strengthening foreign exchange reserves. It is important to note that from April 2000 to September 2023, foreign direct investment (FDI) in the Indian construction sector, including development and operations, was USD 58.5 billion.

Moreover, real estate provides infrastructure for industries such as banking, finance and computer services, etc., which are the highest contributors to FDI capital inflows into India. Some reports also claim that NRI investments in Indian real estate will definitely increase. While in 2020 it accounted for approximately 10%, it is forecast that by 2025 this number will increase to 20% of total real estate investments.

Per capita income also tends to increase as the real estate market grows. The inflow of jobs and the resulting increase in disposable income translate into improved living standards of citizens. This in turn drives consumption and demand across sectors, creating a virtuous cycle of economic growth.

Most importantly, a thriving real estate sector is at the center of GDP growth. Given its interconnectedness with other sectors, its results have a multiplier effect throughout the economy. Therefore, top priority should be given to real estate development policies, recognizing their key role in driving sustainable economic expansion.

As India charts a course for economic growth over the next decade, the real estate sector is emerging as the cornerstone of balanced and sustainable growth. The effects of a thriving real estate market go far beyond infrastructure development to include job creation and GDP growth. Thus, prioritizing the Indian real estate sector is not only a strategic imperative, but the basis for ushering in a new era of prosperity for the next 10-15 years and beyond.

-The author is the president of CREDAI National. The views expressed are personal.

Reservation:The views expressed in the article are those of the author and do not represent the position of this publication.