The Indian real estate sector is a significant contributor to India’s GDP. It is estimated that the real estate sector will likely reach $1 trillion in market size by 2030, contributing to 13% of India’s GDP by 2025. While the pandemic affected home sales, the sector has bounced back. This revival in demand is expected to continue throughout 2023.
The real estate sector is on a strong footing despite a slight increase in home prices and interest rate hikes by banks. The cities of Mumbai and Pune accounted for most of the sales among the top seven cities in India. The other important factor driving the demand for homes is an increased interest from NRIs. With the Indian rupee depreciating, NRIs now have more purchasing power which they are investing right back into Indian real estate. The obvious choice for investment is the luxury and premium housing segment, although many NRIs have also shown interest in buying properties in tier-two cities. In many cases, the leading developers in the country saw their new launches sold out in the initial days because of this interest from NRIs. This trend is likely to be seen in 2023 as well, as NRIs continue to park their investments in Indian real estate.
In 2022, real estate developers showed caution in launching new projects to reduce the already existing high inventory. This is expected to continue in 2023 as well. Real estate developers launched selective new projects with better amenities to suit the changed preferences of home buyers. The pandemic has changed the definition of a home. This is reflected in the increased interest in high-quality homes with designated workspaces, gyms, and outdoor spaces. Ready-to-move-in properties will be more in demand as home buyers prefer to invest in properties they can move into immediately. In fact, much of the demand in 2022 was for ready-to-move-in homes.
Home buyers have also shown a preference for buying a property that is close to healthcare facilities and has access to open and recreational space. The other amenities that home buyers look for are day care centres and proximity to the office. Home buyers are even willing to pay a premium for such properties. There is also an increased preference for plotted developments and independent floors. This works to the advantage of developers as well because such projects are faster to execute, and inventory liquidation is faster. The luxury housing segment has also seen a boom as this segment is not impacted by high-interest rates or inflation.
The growth in real estate is also because of government reforms such as the Pradhan Mantri Awas Yojna, under which approximately 80 lakh houses will be built by 2023. State governments have also taken measures such as SWAMIH that helps fund stalled affordable housing projects. This will help developers finish affordable housing projects.
In the commercial segment, new supply is expected to increase in the coming year, but developers might proceed with caution. The growth in supply will be guided by the IT and ITes sector, which accounts for 45 percent of India’s office leasing space. With employees returning to work, physical occupancy at offices across sectors is expected to increase. With the Indian economy growing, other sectors such as BFSI, consulting, pharma, and e-commerce will also drive demand for office space. The supply will, however, be aligned with demand.
Co-working spaces will also see growth as more and more organisations are opting for flexibility. Flexible spaces have become a trend and co-working companies have seen an increase in demand from large companies, MNCs, start-ups, and even individuals. There is also a lot of demand for customised workspaces, satellite offices, and technology-centered workspaces.The commercial segment might even see a slight fall in enquiries and demand in the coming year because of the global economic headwinds. There are fears of a recession in the US, which could impact leasing activities. Reduced outsourcing of work to India and layoffs in the tech industry can slow down the commercial real estate segment. But, if the demand remains stable, rentals will improve in the coming year.
On an overall basis, real estate sentiment is positive with growth being driven by the residential segment followed by the commercial and retail segments. In the post-covid period, domestic and international travel is also on the rise which is expected to fuel demand for hotel rooms. The hospitality sector is already seeing an increase in occupancy and an increase in average room rates. If there is no further pandemic scare, this trend could well continue into 2023. With 2022 ending on a positive note for the real estate sector, 2023 promises to be an even better year.
