The Economic Survey 2023-24 forecasts a promising outlook for India’s real estate sector, driven by rising housing demand due to rapid urbanization. However, it also highlights the significant challenge posed by legacy stalled projects.
The Economic Survey emphasizes that real estate and ownership of dwellings have contributed over seven percent to the Gross Value Added (GVA) in the past decade, underscoring the sector’s crucial role in the economy.
Presented by Finance Minister Nirmala Sitharaman, the survey suggests that the real estate market is poised for significant growth, driven by increasing urbanization.
The survey projects that by 2050, half of India’s population will reside in urban areas, compared to 31% in 2011. This demographic shift necessitates adaptive strategies and policies to meet the growing housing demand, focusing on providing viable, cost-effective, and sustainable housing solutions.
Despite the positive outlook, the survey acknowledges the substantial issue of legacy stalled projects. Approximately 410,000 stressed dwelling units, valued at ₹4.1 lakh crore, are affected, as estimated by the Indian Banks’ Association. The Ministry of Housing and Urban Affairs has established a committee to recommend solutions for completing these stalled projects. The primary cause of stress identified is a lack of financial viability, leading to cost overruns and delays.
The real estate sector has shown a robust recovery following two years of pandemic-induced challenges. The COVID-19 pandemic has shifted homebuyers’ preferences toward larger, sustainable spaces with additional amenities, driven by remote and hybrid working trends.
Growth Drivers of the Real Estate Sector
Several factors contribute to the growth of the real estate sector:
- Rapid Urbanization: Increasing urban population drives housing demand.
- Rising Income Levels: Enhanced financial capacity boosts real estate investments.
- Emergence of Nuclear Families: Smaller family units increase housing needs.
- New Market Entrants: New players in the market stimulate competition and innovation.
- Improved Financial Options: Better financing options for developers and homebuyers facilitate growth.
The Economic Survey, quoting data from housing brokerage firm PropTiger, highlights that residential real estate sales in 2023 reached their highest levels since 2013, with a 33% annual growth. The top eight cities recorded a total sale of 410,000 units. Additionally, new supply saw an all-time high with 520,000 units launched in 2023.
Rising Demand
The rising demand for housing loans reflects the underlying strength of the real estate market. The percentage of housing loans relative to GDP has increased from FY12 to FY24. Housing Finance Companies (HFCs) have played a complementary role to banks, providing housing credit to the lower-income segments. The share of outstanding housing loans as a percentage of total loans of HFCs stood at 70.8 percent as of March 31, 2024.
Several government initiatives and policy reforms have bolstered the real estate sector:
- Pradhan Mantri Awas Yojana-Urban (PMAY-U): Over 1.2 crore houses sanctioned for urban beneficiaries since 2015.
- Goods and Services Tax (GST), Real Estate (Regulation and Development) Act (RERA), Insolvency and Bankruptcy Code (IBC): Enhanced transparency and investor confidence.
- Affordable Housing Fund and Special Window for Affordable and Mid-Income Housing (SWAMIH) Investment Fund: Supported affordable housing projects.
- Credit Linked Subsidy Scheme (CLSS): A primary driver for demand-side housing support. The National Housing Bank (NHB) has released ₹49,460.1 crore in subsidies, benefiting over 2.11 million households by March 2024.
Sustainability and technology have emerged as significant disruptors in the real estate sector. Green construction practices, energy-efficient designs, and smart home technologies are becoming increasingly important. The focus is on integrating energy-efficient systems, rainwater harvesting, and smart building technologies to address environmental concerns.
Looking ahead, the demand for housing is expected to be driven by affordability and increased access to credit. As of March 2024, the shares of individual housing loans outstanding are significant in the Southern, Western, and Northern states, while the Eastern and North-eastern regions present opportunities for increased penetration.
While the real estate sector in India is on a positive trajectory with promising growth prospects, addressing the challenge of stalled projects remains crucial. Sustainable practices and technological advancements will shape the future of real estate, ensuring it continues to be a cornerstone of economic growth.