A lot has been written and discussed about the future of real estate in India, in the past few months and years. The primary reason being the slow-down the sector has been going through in the past few years and also at present the recovery cycle is not very clear; there are a number of spiculations and predictions being made based on available facts; the bottomline remains that even the stalwarts of the real estate sector in India are confused about the future recovery of the sector. Let’s base an analysis on some facts which we are sure of and are not speculative.
The residential real estate requirements in India are growing by 2 million year on year, the shortfall in 2012 was 18.7 million; based on these figures the total shortfall by 2028 will be 46.7 million. See graph 1 below. The distribution of this requirement in terms of affodable, mid and luxury segments is shown in graph 2. The requirement is very loud and clear; bulk housing required in India is in the affordable segment.
Graph 1 Graph 2
One thing is very clear from the above graphs that there is huge potential as well as market for real estate in India. Incase the real estate sector in India looks at meeting this challenge the sector is in for some very good times. Based on the above facts if the real estate sector in India grows to meet the market requirments, it would be a whooping 853 billion dollar market from 121 billion in 2013; a seven times growth rate with a CAGR of 13.9. See graph 3 below. The sector would be contributing 13% to the Indian GDP in 2028 (refer graph 4)
Graph 3 Graph 4
The segment wise distribution of capital is shown in graph 5 below, for obvious reasons the main contribution is going to be from the affordable segment and this is the segment which the real estate sector needs to focus on.
There are a number of drivers which contribute towards the residential real estate in India; these are highlighted in the illustration below. We have already discussed the housing shortfall which is one of the key drivers; the second most important factor is the Indian diaspora, which tends to get overlooked. If the real estate sector in India is able to initiate some confidence building measures in the coming years, it would go a long way in tapping this huge potential market.