Real estate and Infrastructure are often considered the keystone of any economy, consistently serving as a barometer for a nation’s progress. With India’s economic liberalisation in 1991 and subsequent GDP acceleration, the late 1990s marked a crucial growth phase where the Indian real estate sector emerged as a key driver of comprehensive development, leveraging its multi-sectoral impact.
In India’s current dynamic economic landscape, the real estate industry plays a pivotal role in fuelling substantial growth and setting a definitive roadmap towards the collective $5 Trillion goal.
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Given the important junction of the Indian economy, and the need to ensure strategic course corrections, there lies a huge underlying opportunity for the real estate sector to lead an era of persistent growth for the next 10-15 years. Yet, unlocking its complete potential necessitates the creation of a supportive ecosystem – an eco-system that facilitates real estate as a critical player in multiplying GDP value and increasing revenues, per capita incomes that will aid further growth as a part of a self-sustaining cycle due to ever-increasing consumption.
Positioning Real Estate as Focal Point of Economic Growth
Akin to other major developed economies including China, Korea, and Japan, where their economic boom coincided with real estate’s sharp trajectory, India needs to create an ecosystem that revolves around the growth of Indian real estate.
The sector has the potential to become the primary economic engine of this country. The holistic growth impact that real estate possesses is also validated by the recent sheer volume that has coincided with strong Quarter-on-quarter GDP numbers. We continue to be on an upward trajectory as various reports are now highlighting how India’s real estate sector is expected to expand to US$ 5.15 trillion by 2047, contributing 17.5% to the GDP from an existing share of 8%.
Unlike other sectors, real estate’s impact transcends mere infrastructure development; it intertwines with multiple facets of the economy. Hence, policies aimed at fostering growth should prioritise stability, transparency, and efficiency within the sector.
Incentivising Homebuyers and Developers Through Effective Policymaking
One of the primary catalysts for stimulating real estate activity lies in the rationalisation of lending rates. Lowering interest rates incentivises prospective developers and homebuyers to invest, thereby bolstering both demand and supply in the process. This not only fuels the housing market but also amplifies economic activity across related industries. Additionally, it enables existing homeowners to refinance at more favourable terms, freeing up capital for further investment.
There also needs to be additional measures to boost affordable housing – bringing in more policy amendments to encourage increased participation in this segment is key for policymakers.
Rationalising Cost of Raw Materials – Lowering price volatility
The cost of raw materials constitutes a significant portion of overall construction expenses. By rationalising these costs, policymakers can ensure that housing prices remain stable and within reach for a broader segment of the population. Implementing measures to streamline procurement, reduce taxes and tariffs, and promote sustainable practices can mitigate price fluctuations, thereby fostering a conducive environment for both developers and buyers.
Multiplier Effect on Macroeconomic Indicators
A thriving real estate sector serves as a linchpin for bolstering various macroeconomic indicators. Foremost among these is employment generation, where real estate falls second after the agricultural sector. The sector’s labour-intensive nature translates into job opportunities spanning from construction workers to architects and urban planners.
In 2023, real estate is currently generating a total employment of 6.08 CR, projected to grow manyfold in the coming 20 years. Moreover, the ancillary industries that support real estate, such as manufacturing and retail, experience a surge in demand, further amplifying employment prospects. Through these allies, Indian real estate is currently directly and indirectly contributing 47% of the country’s GDP.
Wealth creation is another notable byproduct of a robust real estate market. As property values appreciate, homeowners accrue equity, thereby expanding their net worth. This newfound wealth can be leveraged for further investment or consumption, thereby stimulating economic activity.
Additionally, a buoyant real estate sector attracts foreign investment, injecting additional capital into the economy and bolstering foreign exchange reserves. It is important to note that from April 2000 to September 2023, foreign direct investment (FDI) in India’s construction sector, including development and activities, was $58.5 billion.
Furthermore, real estate provides the very infrastructure for the industries like banking, finance, and computing services, etc, that have the highest contribution to FDI equity inflows into India. Certain reports also claim that NRI investments are bound to increase in Indian real estate. While in 2020, it constituted around 10%, it is projected that this number will grow to 20% of total realty investments, by 2025.
Per capita income also witnesses an upward trajectory in tandem with real estate growth. The influx of jobs and the subsequent rise in disposable income translate into improved living standards for citizens. This, in turn, fuels consumption and spurs demand across various sectors, creating a virtuous cycle of economic growth.
Most importantly, a thriving real estate sector serves as a hub for GDP growth. Given its interconnectivity with other sectors, its performance has a multiplier effect on the overall economy. Consequently, policies aimed at nurturing real estate should be accorded the highest priority, recognizing its pivotal role in driving sustained economic expansion.
As India charts its course for economic ascension over the next decade, the real estate sector emerges as a cornerstone for sustainable and sustained growth. The ripple effects of a thriving real estate market extend far beyond infrastructure development, encompassing employment generation and GDP growth. Thus, prioritising the Indian real estate sector is not merely a strategic imperative but a foundation for ushering in a new era of prosperity for the next 10-15 years and beyond.
-The author is President, CREDAI National. Views expressed are personal.
Disclaimer:The views expressed in this article are those of the author and do not represent the stand of this publication.
