How Investors Are Capitalising On India's Economic Growth: Insights From Real-Estate Perspective

The Indian real estate market is witnessing remarkable growth despite global inflationary headwinds resulting from the lingering effects of the pandemic and geopolitical tensions. This growth is being largely driven by India's resilient economy, consumer demands, and increasing investor confidence. In 2022, the investments in Indian real estate grew to a record-breaking $7.8 billion, registering a 32% YoY increase. Foreign inflows in the sector have also been on a steady upward trend, accounting for 77% of the total investments over the last five years.

Another significant factor propelling the growth of India's real estate sector is its youthful population. The country boasts a median age of just 29, considerably lower than that of China and the US at 38, and Germany at 48. The country's highly aspirational youth display positive home-owning sentiments and are increasingly entering the real estate market with a desire to buy their first homes. The spending power and preferences of this generation is reshaping the Indian real estate market, setting it for an upward trajectory. Additionally, the bourgeoning middle class, a result of rapid urbanisation, increased access to employment opportunities, and rising disposable incomes, contributes to a high domestic consumption rate — 60% of the gross domestic product, compared to China's 38%.

Exhibiting a robust performance over the last few years, the real estate sector is poised to play a pivotal role in driving India's economic growth even further. The sector's contribution to the country's GDP is expected to grow from the current 6–8% to a projected 13% by 2025. However, support from key stakeholders, including the government, will be critical in maintaining this positive trajectory. 

The Indian real estate market is recording sturdy growth, presenting opportunities for investors, developers and stakeholders alike. Healthcare, senior living, data centres, and logistics are particularly emerging as promising asset classes, fuelled by demographic shifts, technological advancements, and evolving consumer preferences.

Here are some key industry trends that are critical for navigating the complex real estate landscape and maximising potential benefits.

In the first quarter of 2024, the Indian real estate sector experienced a remarkable 15% growth in investments, exhibiting resilience amid global uncertainties. Foreign investors dominated the investment landscape with 55% of the total inflows, indicating their growing confidence in the Indian real estate market and its potential to deliver substantial returns. With a 15% increase, the share of domestic inflows in overall institutional investments surged to 45%, up from 24% in the corresponding period last year. A steady inflow of both domestic and international funding is helping developers undertake ambitious projects, ranging from cutting-edge commercial centres to sprawling residential complexes.

This surge in investments has translated into tangible growth for office spaces and luxury housing, as these sectors exhibit strong performance indicators. Driven by an increasing number of high-net-worth individuals, India's luxury property market has witnessed a remarkable growth. The sales value of luxury homes priced at Rs 50 crore and above soared by 1.5 times, reaching a staggering Rs 4,319 crore in 2023, compared to Rs 2,859 crore in 2022. Concurrently, the gross office leasing activity expanded significantly, achieving 15.16 million square feet in the first quarter of 2024, a notable 13.8% increase from the previous year. India's spending in these sectors has been both productive and efficient, driving economic growth and laying the groundwork for sustained development.

With a current population of over 100 million seniors, the demographic shifts are creating favourable demand dynamics for senior living spaces in India. The share of the senior population in the country is projected to double from 10% to 20% by 2050. As such, the demand for senior living services, including housing, medical and insurance, has been steadily increasing. In the current landscape, developers are meeting this rising need with independent living units, which constitute 84% of the market share.

However, with an increased focus on health and wellness, seniors are now looking for living options with amenities, such as fitness centres and recreational activities, to support a fulfilling lifestyle. Therefore, going forward, developers must focus on creating customised senior living spaces that offer a holistic ecosystem of care and well-being.

India is strategically positioning itself as the data-centre powerhouse of the Asia-Pacific region. With an installed capacity of 950 MW and an additional 850 MW expected by 2026, the country has surpassed major players in the sector, including Singapore, Australia and Japan. With institutional investors recognising the potential of data centres, investment in the sector has surged, attracting over $40 billion between 2018 and 2023.

India is ranked the 13th largest data-centre market in the world with 138 data centres. Additionally, 45 new data centres with a combined 13 million square feet and 1,015 MW of capacity are scheduled to be developed by the end of 2025. The substantial growth potential in India's data centre sector is fuelled by the demands of the IT sector and global capability centres, the expanding digital economy encompassing social media, e-commerce, digital transactions, and streaming services, as well as the shift towards hybrid workplaces.

Real estate developers are capitalising on this opportunity by building cutting-edge data centres to meet the growing demand for cloud computing and data analytics.

The ecommerce boom, coupled with the government's focus on domestic manufacturing, has stimulated a growing need for efficient supply chains and warehousing spaces in India. Studies reveal that total warehousing stock in eight major cities hit 371 million sq. ft by the end of 2023, marking a 15% YoY increase from 329 million sq. ft.

The government's strategic investments and commitment to digitalisation have been instrumental in this growth. To secure lucrative returns from India's logistics revolution, investors are strategically targeting prime locations near major transport hubs.

The hospitality industry is projected to experience a robust resurgence in 2024, offering investors an ideal opportunity to harness the potential of the sector's expansion.

India's economic resilience, coupled with its thriving spiritual tourism and leisure sectors, is poised to maintain buoyancy in the hospitality industry. The government's concentrated pivot towards infrastructure development reaffirms this projection. As per reports, hotel investments in India surged to $401 million in 2023, marking an almost four-fold increase from the levels seen in 2022.

High net worth individuals and institutional investors are the key drivers of hotel investment activity, contributing an imposing 31% chunk of the total share in 2023. Not far behind are the real estate developers, occupying a substantial 27% part of the investment landscape.

Propelling this conducive climate for investment is the rising curve of domestic tourism, a surge in budget and mid-tier hotels, an enhanced focus on wellness and health tourism, adoption of innovative technology, and emphasis on sustainable tourism practices. Collectively, these forces shape a captivating investment narrative for the hospitality sector, making it an enticing proposition for potential investors.

Over the last decade, the Indian government has implemented several policies to bolster the economy. The Make in India initiative and the Production Linked Incentive scheme, for instance, have been instrumental in positioning the country as a global manufacturing power, attracting both domestic and foreign investments.

The government has also prioritised international collaborations to accelerate economic growth and build best-in-class infrastructure. Additionally, several reforms and policies have been introduced to support the growth of infrastructure projects, such as the Smart Cities Mission and the development of industrial corridors. For the current financial year, the government has allocated more than $132 billion to infrastructure projects, marking a more than threefold increase from five years ago.

All these schemes seek to make the Indian economy more competitive, positioning the country as one of the biggest growth drivers globally. Research shows that while India's economy is set to accelerate to 9% by the end of the decade, China's is likely to slow down to 3.5%. A shift that's appealing to western countries looking to diversify away from China in search of high-return investment options. An improving marketplace, political stability and investor-friendly repatriation policies collectively make India an attractive destination for increased foreign investment.

India's robust economic growth and proactive government initiatives undoubtedly provide a solid foundation for the growth of the country's real estate sector. However, investors should maintain a balanced approach, combining optimism with caution.

While developers offer discounts to attract buyers, prospective investors must thoroughly research the market and assess their finances before investing. Inflation and cyber threats are also prominent concerns, necessitating robust risk management strategies to safeguard investments.

While there are short-term hurdles—regulatory challenges and economic uncertainties—the long-term outlook is undeniably promising. Improved capital flows, a resurgence in exports, and ongoing infrastructure development are set to propel the market to new heights. 

Arshdeep Sethi is President, RMZ Real Estate, RMZ Corporation.

Disclaimer: The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.