The real estate and construction sector in India is expected to be the third largest globally by 2030, contributing over 15 per cent to Indian GDP and emerging as the largest employer in India, providing employment opportunities to over 75 million people. A background paper by KPMG in India and the National Real Estate Development Council (NAREDCO) provides an overview of the key programmes launched by the central government in the recent past to address the key challenges in urbanisation and the real estate sector, and throws light on the policy reforms undertaken by government to address these concerns.
The paper highlights that India’s urban population is forecasted to increase by about 40 per cent from 420 million in 2015 to over 580 million by 2030. The government has launched several large programmes (such as Smart Cities, Housing for All, AMRUT, HRIDAY etc) along with policy support (Real Estate Act, REITs, GST, etc) to accommodate such a vast population base. According to the paper, nearly 110 million houses would be required by 2022 alone in urban as well as rural India to provide housing to all citizens. This includes the current shortage of over 60 million houses, out of which around 20 million exist in urban areas.
As per the paper, there are a number of solid infrastructure projects in the pipeline. These include 432 projects worth Rs 6.5 trillion for roads, more than 400 projects worth Rs 6 trillion in railways, 70 projects worth Rs 670 billion for the development of airports and 75 projects worth Rs 551 billion for the ports.
The paper attempts to analyse the construction development sector as a whole. The sector has attracted over US$ 24 billion Foreign Direct Investment (FDI) between 2000 and 2015. The Housing for All initiative requires an investment of US$ 2 trillion by 2022. Also, the potential value of REITable commercial office assets is more than 400 million sq ft which is worth over US$ 50 billion.
“With every sixth person getting urbanised globally being an Indian, the real estate and construction sector holds significant opportunity for both global and domestic companies engaged across the value chain (design, development, construction, finance etc), says Neeraj Bansal, Partner and Head, Building, Construction and Real Estate Sector – KPMG in India. He adds, “To meet this requirement, India will need to construct 43,000 houses every day until 2022 to achieve the vision of Housing for All by 2022, hundreds of new cities need to be developed over the next decade. This has the potential for catapulting India to the 3rd largest construction market globally. The sector is expected to contribute 15 per cent to the Indian economy by 2030, become the largest employer by 2022 – employing about 75 million people or more than 13 per cent of the total estimated workforce of India, remain the largest contributor to the state exchequer and will consume almost a quarter of India’s total electricity need by 2030. The recent policy reforms such as the Real Estate Act, GST, REITs, steps to reduce approval delays, etc, are only going to strengthen the real estate and construction sector. The sector players now, more than ever, need to develop a global mindset towards quality, project delivery, work culture and governance. Strong steps are required to provide faster approvals, serviceable and clear title of land, long term finance and skilled workforce.”
According to Rajeev Talwar, Chairman, NAREDCO, “The Hon’ble Prime Minister has laid the road map for making India into a US$ 10 trillion economy. We are excited about the next ‘Decade belonging to India’ – as real estate is going to be a catalyst and major economic driver in the process. The government has paved the way with introduction of GST, Real Estate Act, relaxation in investment norms for REITs, direct and indirect tax incentives on housing development. The convention is an opportunity for us as an industry to deliberate about the challenges that we are likely to face in coming years. We now take upon ourselves to implement strategies for fulfilling his vision.”
The paper reflects upon the major programmes in the real estate and construction sector, which includes Smart Cities, 500 AMRUT cities, HRIDAY, Housing for all by 2022, etc. The policy framework complementing these programmes include the introduction of the Goods and Service Tax, Real Estate Act, relaxation in investment norms, REITs, direct and indirect tax incentives on housing development, and IFRS convergence.
The KPMG-NAREDCO background paper also lists the challenges faced by the real estate and construction sector in India. Strict and prolonged regulatory processes leading to delays in project completion is one of the biggest hurdles. Also, there are numerous land-related issues with limited funding from banks, limited availability of long-term funding also posing tough times for growth on the real estate sector. Lack of manpower coupled with the conventional usage of technology followed by the lack of stable and predictive tax regime, are also some of the core afflictions of the sector.
India has made rapid progress in recent years to address these challenges. The ease of doing business rankings have improved, reforms have been brought in direct and indirect tax policies, the approval mechanism is being streamlined across cities, and policies encouraging transparency and governance are reviewed regularly. We can say now, that, India is gearing up for the future and real estate and infrastructure have a plethora of opportunities to offer.