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The real estate dynamics in India depends on varied factors from economic growth, urbanization, government policies and investments to supply and demand in each asset class of the real estate. Avnish Sharma, Partner, Real Estate, Khaitan & Co, said, “Real estate captivates me because it influences everyone’s lives, whether it's through developers building visionary communities or individuals purchasing their first or luxury homes. The dynamic nature of the real estate, with its expansion from traditional sectors to warehousing and data centers, continuously challenges a professional.”
As per Rami Kaushal, Managing Director - Consulting & Valuation Services, India, Middle East & Africa, CBRE, the new-age buyers and investors are the two fundamental pillars of the real estate sector. He said, “Reports indicate a significant resurgence in buyer activity, with demand figures demonstrating considerable strength and resilience each quarter. Additionally, it is noted that buyer behaviour has evolved from pre-COVID times to the present.”
Sharing his views on buyers’ evolving sentiments, Navin Raheja, Chairman & Managing Director, Raheja Developers, said, “In the last two or three years, the real estate sector has rebounded from prolonged stagnation. The pandemic emphasized the importance of private living spaces for health and environmental reasons. Currently, real estate flourishes due to genuine demand boosted by increasing disposable incomes in India's growing economy. There is now a substantial demand for spacious, well-equipped homes as significant household income is directed towards real estate investments.”
Speaking about the buyer’s demography getting younger by the day, Pradeep Aggarwal, Founder & Chairman, Signature Global India Ltd shared that in the present purchasing cycle, the buyers are mostly the millennials. In the past 5 to 7 years, the typical age bracket for property buyers has been from 30 to 40 years old, with the majority of home loan borrowers being between 31 and 32 years of age. The pandemic motivated individuals, especially those in rented accommodations to prioritize homeownership for personal security. There is a notable shift towards larger homes of at least 3 BHK with dedicated workspaces. Modern buyers also prioritize automation and sustainability, a trend that is likely to intensify.”
Sapna Srivastava, Editor, Realty+ concurred on the new developments and stated, “Every day, we observe the emergence of new asset classes such as co-living, co-working, fractional ownership, student housing, senior living etc, given the new demands of the population. However, despite the significant contributions of the Indian economy, developers are often perceived negatively and labelled as crony capitalists.”
Hardeep Sachdeva, Senior Partner, AZB & Partners explained the reasons for the same, “Over 75% of the pending cases in courts pertain to property disputes and delays. Add to that, the highest number of licenses and approvals required, are in the real estate sector. Most of the developers, understand the regulations, laws, bylaws, licenses. And also know the loopholes and where to plug them. If you look at the just last decade of the current incumbent government, all major law changes touch upon real estate in some way or the other.”
THE HOUSING TRENDS
Recent demand data reveals a distinct shift towards the luxury segment, Rami Kaushal stated, “The increase in prices represents a secular trend that is not limited to the NCR region. Cities such as Bombay and Bangalore,among other markets, are experiencing price rises ranging from 20% to 100%.”
Pradeep Aggarwal however was of the view that the demand spans across housing segments. “Today, developers prefer focusing on the luxury market due to its better profitability. While luxury properties still attract interest, demand remains strong in the mid-income and affordable sectors. There is a significant demand with inadequate supply, especially in regions like Gurugram, where properties priced under 2 crores are scarce as the inventory depletes rapidly, in contrast to the relatively softer demand for high-end properties.”
Navin Raheja added, “The luxury segment is favoured because it is more profitable to sell fewer high- priced units than many low-cost ones. Developers prefer this due to lower density and better returns on investment. Commercial projects also sell well now, if the leasing price and location are favourable, unlike in the past when only profitable ventures succeeded. In recent years, property values have doubled, indicating strong demand from actual buyers rather than investors.”
POLICIES & FINANCES
Rami Kaushal stated, “The government in the past two budgets has imposed a cap on long-term capital gains and adjusted the regulations concerning those gains. Also, a recent report indicates that in the first half of 2024, credit disbursement to real estate companies and stakeholders increased by nearly 45% year-on-year, which is a significant rise.”
Pradeep Aggarwal believes that the government's decision to maintain the long-term capital gain threshold for real estate above 10 crore is intended to regulate speculative activities and short-term profit chasers. With a budget allocation of approximately 11 lakh crore, infrastructure development, including implementation of comprehensive housing schemes, with a planned investment of 2.20 lakh crore, reflects the government's strong support for the housing sector.
Speaking about the role of financial institutions for construction finance to small and mid-sized developers, Navin Raheja said, “Over the past decade, NBFCs and AIFs have learned valuable lessons from the decline of several prominent developers in the Indian real estate market. These institutions are now exercising caution when extending funding. Their regulatory compliances and scrutiny, stringent due diligence and security mesures are making it challenging for smaller developers to secure capital.
Moreover, land purchases can only be completed through equity. Unencumbered land cannot secure a loan or license; equity investment is essential for land acquisition.”
Rami Kaushal agreed, “Investment typically begins at the land acquisition stage, which includes purchasing land, among other things, and traditionally, securing funding for land has been difficult. Securing funding for land acquisition requires structured debt on the balance sheet due to a lack of equity. This presents a challenge, as seasoned developers with multiple projects can access capital, while new developers face considerable difficulties.”
Pradeep Aggarwal expressed, “Despite plentiful funding, corporate governance remains a key concern for investors. Also, with ample land in Delhi NCR and growing interest from global private equity investors, the region presents promising potential. The land prices in NCR have more than doubled, with even the least desirable areas now costing 25 to 30 crores. Property prices have only modestly increased from INR 7,000- 8,000 to INR 13,000-14,000, signalling more of a stabi- lization. Consequently, while real estate price growth may decelerate, it is unlikely to halt entirely."
THE NEW DYNAMICS
The real estate sector is intriguing due to its vast scale and complexity. As per Avnish Sharma the first paradigm shift in the sector had been the opening of markets to private capital, second the government policy reforms aimed at infrastructure and affordable housing. Additionally, judicial interventions in recent years have contributed to the refinement of this sector. Developers must prioritize building trust as it is essential for creating successful real estate projects. Patience is also vital due to the long-term nature of real estate cycles. Additionally, the ability to selectively choose projects is crucial, as focusing on fewer projects can lead to lasting respect and success. Building a strong reputation requires focus on high-quality construction and tech- nological advancement, ultimately attracting clients and ensuring long- term trust and success.”
Sapna Srivastava added, “Involving homeowners in the IBC recog- nizing them as financial lenders has been another big step for the sector and especially the homebuyers. The real estate market is now dominated by serious investors, unlike before when anyone with money could enter. Moreover, the buyer expectation has surpassed that of just getting project delivery on time but also wants an excellent customer experience and after sales service. Furthermore, the financial discipline that is now evident in the real estate firms has led to better project executions and deliveries.”
According to Hardeep Sachdeva the opening of real estate to private capital led to numerous developments, but over time, financial discipline has been established due to regulatory changes. "This shift ensured better project delivery and reduced real estate speculation. “Digitalition has increased customer expectations for fast service, requiring developers to work more efficiently. Customers now expect to receive their money within 24 hours and documents within five business days. In today's market, legal professionals too must offer commercially viable, solution-focused approaches to the real estate professional, combining their expertise and domain knowledge.”
Financial institutions now exercising caution when extending funding. The heightened regulatory compliances and scrutiny are making it challenging for smaller developers to secure capital.
