Emerging trends in the Indian real estate (…so that you can sound smart at the next cocktail party)
The real estate industry is extremely vast and complex with multiple facets and innumerable stakeholders. Like tentacles of an octopus each of these move in a direction of its own with their own nuances. While these make for great expert conversation they pretty much lose their relevance for the average home buyer. Having heard multiple real estate conversations at parties I have managed to piece together my own list of 10 interesting broad level trends that might become a reality in the immediate future. (Read these to sound smart at the next party)
1. Sustainability:
There is no debate that one of the most pressing issues going forward will be around sustainability. To create residential and commercial infrastructure that gives back as much as it takes from the surrounding is the need of the hour and will soon become critical for both long-term value generation and short-term profitability. From solar energy panels, water harvesting, superior natural lighting & indoor air quality to the utilization of green (sustainable) construction will be major points of discussion between buyers and sellers. It is the need of the hour for real estate players operating both in the residential and commercial space to break out of the traditional mold and revamp themselves to realize more benefits from sustainability — social and environmental factors will have an impact on the value of a real estate property.
2. From unorganized to organized
In the last decade, Indian real estate has witnessed a paradigm shift — it has moved from an unorganized sector to transform and become a more structured one. While technology and the emergence of professional builders has played a part in this transformation, it is the investments by institutional private equity and strategic investors that has helped turn around this part of the Indian economy. As per a recently published KPMG report: Challenging the tides: Indian real estate, 2015 “The Private Equity (PE) funding channel within the real estate sector gained significance post the global financial crisis, as cash flows from other sources of finance (such as capital markets, banks and private lending) moderated. However, several issues on the macroeconomic front, including muted growth, rising inflation and falling currency, coupled with a muted real estate sector, led to modest investments by private equity funds between 2009 and 2013. In the year 2014–15, India emerged as one of the very few economies with a favourable market outlook. Political stability and focussed efforts by the government to strengthen economic revival and growth sparked renewed interest by the global investor community towards India. Further, policy announcements and reforms to revive the real estate space, particularly, relaxing the FDI norms, tabling of the Real Estate (Regulation and Development) Bill and establishment of Real Estate Investment Trusts (REITs) helped in generating a positive outlook for the real estate investment market. Such positive sentiment fostered several private equity and strategic investors, including pension and sovereign funds, to commit significant funds to the Indian real estate sector in the past 12 to 18 months.” As per Private Equity in Real Estate Transaction Database, Venture Intelligence, accessed 11 September 2015 “Investors committed or invested around USD4134 million across 78 deals in the past 12 months.”
3. Technology
Technology has impacted almost all aspects of the average human’s life including their engagement with real estate. Digital house hunting is already happening while so is using virtual reality technology for home tours. Over the next five years (2015–2020) the Indian government has already allocated USD8,000 million for the development of 100 new Smart Cities. As smart cities become a reality so will connected smart homes where every electronic device in the house will be customized to individual needs and capable of talking to each other.
4. Suburbs and Second Tier Cities Take Center Stage
The triple forces of space constraint, soaring prices in prime locations and the advancement of technology which aids remote working and superior travel will lead to Suburbs and Second Tier Cities taking center stage. This will ease the pressure faced by some of our metros as well as provide people the benefits from lower costs of living.
5. The Indian government’s vision of “Housing for All by 2022”
With over 1.2 billion people and an urban population that is expected to reach close to ~800 million by 2050 India is embarking on rapid urbanization. Keeping this in mind the government has proposed the ‘Housing for all by 2022’ initiative which entails a “development of ~11 crore housing units, including closing the current gap of ~6 crore units in urban and rural areas.” This mission on low cost affordable housing is proposed to be anchored by National Housing Bank (NHB) and a sum of USD667 million has been earmarked for it. The government has also identified 305 cities and towns for constructing homes for the urban poor. As per 2014 KPMG report: Decoding Housing for all 2022 “USD667 million allocated for low-cost housing and USD 3,735 million for urban housing and this poses a business opportunity of USD11.8 billion for developers with the development of ~110 million housing units across the nation that caters to the housing shortage predominantly in the Economically Weaker Section (EWS) & Low Income Group (LIG) segment.”
6. Branded real estate
While India is home to some of the poorest people in the world it is also home to a growing population of millionaires. By 2025, India will have more than 480,000 high net worth individuals (HNI), or people with assets of over $1 million. Just like there are specialized needs for the people at the bottom of the pyramid similarly people occupying the top are increasingly demanding differentiation and customization. Branded Real Estate is being positioned as the “Next Big Thing in Luxury”. There are the US OPEN Apartments in Mumbai, Michael Schumacher World Tower in Delhi as well as Armani and Swarovski towers under development in both these cities. Global research conducted by the Knight Frank shows that “developers can increase profits by around a third by building branded homes, fully-serviced designer luxury pads that separate them from the rest of the real estate pack and appeal to an aspirational clientele.”
7. Reimaging parking
As tech trends such as ride-sharing and autonomous cars begin to change transportation patterns and with the development of driveless cars going forward many people would start opting out of car ownership. This would free up a lot of prime real estate in cities as well as help develop flexible price fluctuating parking slots — a GPS enabled tracker to help you find the closest available parking lot whose price fluctuates depending on the demand it currently faces.
8. Changing office landscape
Office complexes are set to undergo a massive change in the coming decade. With the emergence of remote working (work from home) and an increase in co working spaces the average number of people a typical office has to house will undergo a reduction. As per research done in the USA even the dominant trend towards open office plans has impacted the requirements of a typical office space. The average square foot per worker, which was 253 in 2000, is predicted to shrink to 138 by 2020.
9. Emergence of Bangalore as the “Real estate capital of India”
As per the Emerging Trends in Real Estate, Asia Pacific 2016, PwC & Urban Land Institute report “Bangalore is now the real estate capital of India accounting for almost as much office uptake as Delhi and Mumbai combined.” The report further states that Bangalore “continues to see substantial activity by large foreign private equity firms involved in joint ventures to develop office space for offshoring and BPO use. In addition, Bangalore is increasingly becoming the technology capital of India, as venture capital firms bring in startups to take advantage of the city’s large numbers of qualified engineering and support staff.” According to the Commercial Real Estate Services (CBRE) “The huge amount of upcoming supply (some 18 million square feet) due to arrive over the next two years has generated little concern about oversupply because absorption rates continue to be very high. Current vacancy rates of only 6 percent are therefore not expected to increase, while both rents and capital values should continue to rise.”
10. Delhi-Mumbai Industrial Corridor
Between the 2 cities of Mumbai and Delhi, 8 international standard industrial clusters are being developed. As per the report: Emerging Trends in Real Estate, Asia Pacific 2016, PwC & Urban Land Institute “Down the road from Gurgaon, there’s a lot of money flowing into industrial development and infrastructure creation, into areas where a lot of blue-collar and lower-middle-class demand is gravitating. That’s where the institutional capital is now chasing demand.”
