Foreign Investment

India’s Real Estate Sector: Opportunities for Foreign Investors

The real estate sector in India is globally recognized. It has four sub-sectors – housing, retail, hospitality, and commercial. The growth in the corporate environment, demand for office space, and urban and semi-urban accommodation have led to the growth of this sector. The Real estate sector is India’s second-highest employment generator after the agricultural sector. The real estate sector attracts more long-term and short-term foreign investment. The real estate sector is expected to grow to INR 65,000 crore by 2040.

Opportunities for Foreign Investors

Tremendous investment opportunities lie ahead for foreign investors in India’s real estate sector. One ample opportunity for foreign investors in India’s real estate market is the demand for affordable housing. The government has launched several initiatives to address the shortage of housing units. The initiatives include Pradhan Mantri Awas Yojana (PMAY), which incentivises developers to build affordable housing units. This also serves as a significant opportunity for foreign investors to invest in the market segment.

Opportunities also lie in the commercial segment of the real estate market. The commercial segment includes the office and retail sectors. The improving infrastructure and business environment have made investing in the real estate sector attractive for foreigners. Thus, investing in commercial real estate projects will offer stable returns to foreign investors. It will also provide exposure to the country’s economic growth.

Another opportunity for foreign investors is that the SEBI has lowered the minimum application value for Real Estate Investment Trusts from USD 685.28 to USD 137.06 to 205.59. This step will make the real estate market accessible to small and retail investors. In the real estate sector, including construction, development, and activities, the FDI stood at UDS 55.5 billion from April 2000-December 2022.

Significant Investment and Developments in the real estate sector

Some of the significant investments and developments in the real estate sector are as follows:

1. Private equity investment inflows into the sector stood at USD 3.27 billion between January to July 2022.
2. Home sales in the top eight cities in India reached the 68% YoY mark to reach 308940 units in 2022. This signifies that there was a healthy recovery in the sector.
3. An institutional investment of USD 492 million was made in the retail real estate segment.
4. The Institutional real estate investment in India has increased by 7% YoY in the third quarter of 2021. For the first nine months of 2021, the registered investment stood at USD 2977 million against USD 1534 million in the same period last year.
5. For offering legal advice and assistance to homebuyers, the online Real Estate Company Housing.com, owned by REA India, tied up with online legal assistance start-ups LegalKart, Lawrator, Vidhikarya and Vakil in 2021.
6. Total investments attracted by the top three cities were 77% – Mumbai (39%), New Delhi (19%) and Bengaluru (19%) in the third quarter of 2021.
7. In June 2021, the GIC announced acquiring a minority stake in Phoenix Mills’ portfolio worth USD 733 million, to establish an investment platform for the Indian retail-led mixed-use assets.
8. SRAM & MRAM Group collaborated with Area CAS Developers and Infrastructure Private Limited and Gupta Builders and Promoters Private Limited of India to expand itself in India’s real estate sector. It plans to invest USD 100 million in the real estate sector.
9. Housing sales increased by 29% in seven cities and new launches by 51% in Q4 of FY 2021 over Q4 of FY 2020.
10. Blackstone: a private market investor who has significantly invested in the Indian real estate sector and plans to invest an additional USD 22 billion by 2030.
11. As remote working is gaining pace, the demand for affordable homes within Rs. 40-50 lakhs are expected to rise in Tier 2 and 3 cities, resulting in rising prices in those geographies.
12. HDFC Capital Advisors collaborated with Cerberus Capital Management in April 2021 to create a platform that focuses on high-yield opportunities in India’s residential real estate sector. This platform seeks to purchase inventory and provide last-mile funding for under-construction residential projects across the country.
13. Godrej Properties launched ten new real estate projects in Q4 in March 2021.
14. Godrej Properties increased its equity stake in Godrej Realty from 51% to 100% in March 2021. It did so by acquiring equity shares from HDFC Venture Trustee Company¹.
15.  Sabha Highrise Ventures Pvt. Ltd., A wholly owned subsidiary of SOBHA Limited, acquired a 100% share in Annalakshmi Land Developers Pvt. Ltd. In January 2021.

Government Initiatives in the Real Estate Sector

Central Government and the State Governments of respective States have taken several initiatives to encourage the development of the real estate sector. The plan to build 100 smart cities is a significant opportunity for real estate companies. Some of the other major Government Initiatives are:

1. The Finance Ministry in the Union Budget of 2023-24 announced a commitment of USD 9.64 Billion for PM Awas Yojana. This represents a 66% rise as compared to last year.
2. Giving a significant boost to the real estate sector in India, in October 2021, the RBI announced to keep a benchmark interest rate unchanged at 4%. Low home loan interest rates will act as a driving factor for the housing demand and will increase sales by 35-40% in the festive season of 2021.
3. The Union Budget of 2021-22 has allowed a tax deduction of up to USD 2069.89 on interest on housing loans and tax holidays for affordable housing projects, which have been extended until the end of the fiscal year 2021-22.
4. Income Tax reliefs have been provided by the Finance Minister in Atmanirbhar Bharat 3.0 for real estate developers and homebuyers for the primary purchase and sale of residential units of value up to USD 271,450.60.
5. To revive around 1600 housing projects across top cities, the Union Cabinet has approved setting up a USD 3.58 billion AIF.
6. The Government has created an Affordable Housing Fund (AHF) in the National Housing Bank (NHB) with an initial corpus of USD 1.43 billion using priority sector lending shortfall of banks/financial institutions for micro financing of the HFCs.
7. By December 31, 2022, India had approved 425 SEZs; by January 2023, 270 SEZs were operational. These SEZs are primarily in the IT/BPM Sectors.
8. SEBI has approved the Real Estate Investment Trust (REIT) platform, enabling all kinds of investors to invest in the real estate market.

Conclusion

All-in-all, it can be said that the future of the real estate sector is on the rise in India. Due to the rise in investments, developments and government initiatives to attract investment, it is an excellent opportunity for foreign investors to invest in the real estate sector.

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1. https://www.hdfc.com/content/dam/housingdevelopmentfinancecorp/pdf/investors/relations/annual-reports/2018-2019/Subsidiaries-Annual-Report2018-2019/8-hdfc-ventures-trustee-company-ltd-2018-19.pdf