ASSESSING THE ECONOMIC IMPACT OF INDIA'S REAL ESTATE SECTOR - A CREDAI-CBRE INITIATIVE
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ASSESSING THE ECONOMIC IMPACT OF INDIA’S REAL ESTATE SECTOR A CREDAI-CBRE INITIATIVE
Contents
Executive Summary 1
01
INTRODUCTION
1.1 Growth Machine: India’s Economy 3
1.2 Construction Behemoth: India’s Real Estate Sector 5
1.3 A Billion People Opportunity 6
1.4 Opportunities and Challenges Facing the Sector 7
1.5 Challenges and Government Intervention 8
02
ASSESSING THE ECONOMIC FOOTPRINT
2.1 Key Findings 9
2.2 Overall Economic Impact of the Real Estate Sector in the year 2013 10
2.3 Expanding Economic Footprint of the Sector by 2025 11
2.4 Key Recommendations to Encourage the Real Estate Sector 12
03
CONCLUSION 14
About CREDAI 15
About CBRE 16
Assessing the Economic Impact of the Real Estate Sector
1 Executive Summary
A decade of economic renaissance…
India has witnessed strong economic growth in the last decade primarily on account of economic reforms
that ushered in an era of liberalisation and provided for increased participation from the private sector.
Opening up of the economy for investment was instrumental in spurring broad-based fundamental
growth across various sectors, thereby leading to accelerated consumption and heightened investment
activity in the economy. This growth has percolated to the construction and real estate industry as well,
which is a conduit for growth in a large number of ancillary industries in the country.
…drives real estate and construction industry…
The Indian real estate and construction industry is an integral part of the economy and is responsible
for a considerable part of its development investment. The industry plays an important role in the
development of the country’s infrastructure base and is one of the largest generators of economic
activity. The construction sector has strong linkages with various industries such as cement, steel,
chemicals, paints, tiles, fixtures and fittings, etc. The real estate sector is an important component of the
construction industry and serves as a propeller for private sector involvement in growth of the country’s
built environment.
…churning significant economic opportunities in the short term
The real estate sector has a total supply pipeline of close to 3.6 billion sq ft lined up for completion in
the year 2013. About 98% of this is concentrated in the residential segment, including organised as well
as unorganised space. The rest includes organised commercial office and retail space in leading cities
such as the National Capital Region, Mumbai, Bangalore, Chennai, etc. The total economic footprint
generated by the construction of this real estate pipeline can be gauged from the fact that it will require
a total investment of about INR 254,000 crores, will help generate revenues worth INR 370,000 crores,
and provide employment to about 7.6 million people across the country. The total contribution of the
real estate sector (incorporating the sub-sectors highlighted in the report) in the gross domestic product
of the country has been estimated to be about 6.3% in 2013.
…and driving growth in the long term...
Long term prospects appear highly positive for the sector, with a potential increase in completed space
from 3.6 billion sq ft in 2013 to about 8.2 billion sq ft in 2025. This will generate significant employment
opportunities, with annual employment expected to increase from 7.6 million in 2013 to almost 17
million in 2025, thereby providing substantial socio-economic opportunities for growth in the country.
Consequently, the contribution of the real estate sector to the economy is also expected to more than
double from 6.3% in 2013 to almost 13% in 2025.
However, this projected expansion in the economic footprint of the sector is subject to an effective
utilisation of the potential opportunities for growth and implementation of relevant policy measures to
resolve bottlenecks bothering the sector.
A CREDAI and CBRE Initiative
2
The real estate sector has a share of
approximately 6.3% in the GDP; will employ
almost 7.6 million people in
the year 2013.
Time for government support measures…
These should include addressing supply constraints such as inadequate land availability in most of our
urban centres, complex acquisition process and restricted development control regulations hindering
higher density developments. Other key measures include streamlining the approval process for
construction, permitting new sources of real estate funding such as investment trusts, easing interest
rates, promoting private sector participation in building mass housing schemes, renewal of our built
environment by regular infrastructure upgradation and support to export promotion regimes such as the
Special Economic Zones.
An effective implementation of these policy recommendations will definitely accelerate growth in the
sector and also augment the share of organised real estate in the country’s built environment.
Assessing the Economic Impact of the Real Estate Sector
3
01
INTRODUCTION
1.1 Growth Machine: India’s Economy
India introduced large scale economic reforms in the year 1991 and implemented structural changes
across sectors such as services, financial and industrial. Led by liberalization of the economic processes
along with broad-based fundamental growth across various sectors, India’s economy has exhibited
healthy growth rates in the last decade. The average growth rate registered over the period 2000 -
2012 was about 7.2%1. This growth has been on the back of increased consumption, higher investment
activity as well as productivity gains. Surviving on domestic demand and enhancing consumption levels,
the manufacturing and services industries have also posted healthy growth levels in the past few years.
Sustained economic growth in the last decade has not only propelled India into the league of ‘leading
emerging economies’ alongside China, Brazil and Russia, but also implied that the country is making
an important contribution to the overall increase in the global economic output.
20 India’s Economic Growth over the years
15
9.5 9.6 9.3
10 8.5 8.0 8.5
6.5 6.9 6.8 6.5
6.1 5.8 5.7
5.0
Growth Rate (%)
4.8 4.4 4.0
5
0
2012 - 2013*
2013 - 2014*
1997 - 1998
1998 - 1999
1999 - 2000
2000 - 2001
2001 - 2002
2002 - 2003
2003 - 2004
2004 - 2005
2005 - 2006
2006 - 2007
2007 - 2008
2008 - 2009
2009 - 2010
2010 - 2011
2011 - 2012
-5
India Brazil China Japan European Union
-10
Source: MOSPI, Oxford Economics, IMF Estimates
*Estimates
A CREDAI and CBRE Initiative 1. Ministry of Statistics and Programme Implementation (MOSPI)4
However, over the past two years stagnating global economic conditions have led to a slowdown in the
country’s growth. GDP growth continued to inch downwards in 2012-13, declining to 5% during the
finacial year, compared to 6.5% during the previous year2. This was accompanied by persistently high
inflation and declining industrial growth. However, as a positive step towards dispelling the general
feeling of gloom, the government has continued to maintain its momentum of introducing structural
reforms in the economy. Foreign direct investment in sectors such as multi brand retail, single brand
retail, banking, pension and broadcasting was approved by the union cabinet, while a new Company’s
Bill was recently approved by the lower house of the parliament; the government is also working on
deregulating fuel prices and reducing the subsidy burden on the economy, thereby focussing upon fiscal
prudence, controlling inflation and propelling India back into the high growth trajectory.
Foreign Investment Inflows in India
50 46.84
41.87
40 37.74
34.83 33.91
32.9
30
22.82
20
USD Billion
8.96
10
0
2005 -06 2006 -07 2007 -08 2008 -09 2009 -10 2010 -11 2011 -12 2012-13*
-10
-20
FDI inflows FII inflows
Source: Department of Industrial Policy and Promotion * till February 2013
The industry has reacted positively to this wave of economic reforms, supporting the government in
its drive towards reinstating economic growth. The real estate and construction industry has been
particularly enthusiastic about relaxed guidelines on foreign investment in sectors such as retail and
low cost housing. While these reforms might have a moderate impact on the country’s immediate
growth prospects, the industry expects that in the long run, these steps will support in creating a positive
sentiment amongst global investors for positioning India as a key investment destination.
2. Ministry of Statistics and Programme Implementation (MOSPI) Assessing the Economic Impact of the Real Estate Sector1.2 Construction Behemoth: India’s Real Estate Sector
5
The Indian real estate sector, with backward and forward linkages to approximately 250 ancillary
industries, has been making rapid strides in recent times and has emerged as one of the most important
contributors to the Indian economy. The sector continues its metamorphosis from being largely fragmented
and unorganized to become as structured and organized as its peers in developed economies across
the globe. The growing prominence of India in the global scenario has had a positive impact leading
to increased expectations and responsibilities on this sector.
Foreign Direct Investment in Construction Development
50 46.84 9%
45 41.87 8%
40 37.74 7%
34.83
35 32.90 6%
Share (%)
30
USD Billion
24.65 5%
25 22.82
4%
20
3%
15
10 8.96 2%
5 1%
0 0%
2005 - 06 2006 - 07 2007 - 08 2008 - 09 2009 - 10 2010 - 11 2011 - 12 2012 - 13*
Total FDI Inflow (USD billion) Share of FDI Equity Inflows in Construction Development
Source: Department of Industrial Policy and Promotion * till February 2013
Construction Development includes townships, housing, built-up infrastructure and construction-development projects
The real estate sector has partially risen from the liquidity crisis it was entrenched in 2009, when bad
debts and declining demand led to a dip in the market. However, post 2009 the sector witnessed
recovery in investment and construction activity. An indicator of this recovery is the level of construction
activity witnessed in the real estate space in the country from 2010 to 2012; a total of 200 million sq ft
of investment grade commercial office, retail and residential real estate space is lined up for completion
across the seven cities of National Capital Region (NCR), Mumbai, Bangalore, Chennai, Hyderabad,
Pune and Kolkata in 20133. The sector has also emerged as the most prominent investment option for
the country’s urban households, taking priority over gold, fixed deposits and stock exchange trading.
The following graph highlights the prominence of real estate as an investment asset for an average
urban household in India4.
Segmentation of Investment by Urban Households in India
2% 2%
Real Estate
3%
3% Gold and Arts
4%
30% Bank deposit
Insurance and Pension
10%
Post Office
Mutual Funds
Consumption
19% Equities
27% Others
Source: Reserve Bank of India, National Council for Applied Economic Research
3. CBRE Research
A CREDAI and CBRE Initiative 4. RBI/NCAER Household SurveyThe synergies between the construction and the real estate sector cannot be ignored as real estate
accounts for a significant portion of the construction segment. India is expected to become the third 6
largest construction market in the world by 2020, with the real estate sector expected to reach a size
of USD 180 billion5. Increased activity across various industry verticals combined with rising domestic
consumption of goods/services have contributed towards increased demand levels for real estate across
segments. In addition, an untapped housing demand (estimated housing shortage of 18.4 million
units by 2012)6, has also provided developers with an opportunity of catering to buyers across the
affordability spectrum in multiple cities and towns.
1.3 A Billion People Opportunity
The major demand drivers for India’s real estate market have been sustained economic growth, large
scale urbanisation, expansion in India’s services industry, increased disposable income levels of the
middle class consumers, tax savings on home mortgage products as well as real estate being considered
a conventional class of investment asset. This has been further supplemented with easier and flexible
financing options from increasing number of private players in this field. One can assess the scale of the
sector from the following highlights.
The Spread of Organized Real Estate Space in
400
Leading Cities of India in 20127
350
300
250
Million sft
200
150
100
50
0
NCR Mumbai Bangalore Chennai Hyderabad Pune Kolkata
Source: CBRE Research Residential Retail Office
• The investment grade commercial office real estate in the country has grown tenfold from about 37
million sq ft in 2003 to about 370 million sq ft in 2012, with another 100 million sq ft lined up to be
completed till 2015. This growth was spread across leading cities such as Delhi, Mumbai, Bangalore,
Chennai, Kolkata, Pune and Hyderabad. However, substantial opportunity lies for further growth
as the commercial office real estate space in major commercial hubs in India is still lesser when
compared to other developed cities in the world
• The total size of organised retail real estate in the country has also increased tenfold from about 5
million sq ft in 2003 to about 52 million sq ft in 2012, with another 15-20 million sq ft lined up to
be completed till 2015. This growth has largely been concentrated in prominent retail hubs such
as Delhi, Mumbai, Bangalore, Chennai, Kolkata, Pune and Hyderabad; more than 200 shopping
malls have mushroomed in these leading cities, gradually pushing the share of organised retail in
the country upwards
• More than 150 million sq ft of investment grade residential real estate space was launched by private
developers in the country in 2012. This was instrumental in driving construction activity across cities
such as Delhi, Gurgaon, Mumbai and Bangalore
• The sector attracted foreign direct investment worth USD 11.5 bn (INR 62,000 crores) from April
2005 – February 2013; this was about 4% of the overall FDI across all sectors during the same
period8. The sector received total private equity inflows of about USD 15.7 bn (INR 80,000 cr) from
2005 – 2012. This was about 24% of the entire private equity investments across all sectors of the
economy9
5. Oxford Economics and Global Construction Perspectives
6. The estimates as per the National Urban Housing and Habitat Policy 2007 were apprx. 26.53 mn
units. Recent government estimates put housing shortage for 2012 at 18.4 mn units
7. All real estate numbers in this section are from CBRE Research
8. Department of Industrial Policy and Promotion
9. Grant Thornton Assessing the Economic Impact of the Real Estate Sector1.4 Opportunities and Challenges Facing the Sector
7
India’s real estate sector has a strong growth potential in the coming decade, as it thrives upon
tremendous growth opportunities linked with the country’s development cycle and socio-economic
transformation. Few of these opportunities have been discussed below.
Growing Urbanization
Urbanisation in India has been increasing at an unprecedented rate, with almost 71 million people
added to the urban population from 2001 to 2011. At this rate, close to 534 million people (greater
than the combined population of the United States, Russia and France) will live in Indian cities by 2026.
This offers tremendous opportunities for real estate development, particularly for housing.
Urbanization to Fuel Housing Demand in Leading Cities
600 38.2 45%
32.2 40%
500 30.0
27.8 35%
Population in Millions
400 30%
25%
300
534 20%
200 432 15%
357
286 10%
100
5%
0 0%
2001 2011 2021 2026
Urban population Urban population as a % of total population
Source: Population Projections for India, 2001-26, Registrar General of India
Growth in Household Income
India’s household income is expected to increase by an average INR 60,000 per annum over a period
of six years from 2009-10 to 2015-16. This is expected to fuel consumption and be a support base for
growth in India’s organised retail industry.
Industry research indicates that out of the top five priorities of household spending, three categories
belong to the retail segment. Also, as per the Centre for Monitoring Indian Economy (CMIE), close to
30% of a total household’s income is spent on retail categories such as grocery, apparel and food &
beverage. The most noticeable increase in income is likely to be observed in urban areas, which will
result into further investment in the development of organised retail real estate.
Increase in Household Income to Fuel Retail Spend
400,000
350,000
Household Income in India (INR)
350,000
300,000 290,000
250,000
250,000
200,000
156,000 160,000
150,000 123,000
100,000
50,000
0
2009 2015 2009 2015 2009 2015
Source: NCAER 2012
Rural Urban Urban
All India
Growth in Information Technology Industry/Services Industry
Burgeoning growth in the information technology and outsourcing industry is a major demand driver for
the growth of commercial real estate space in the country. This sector is the biggest office occupier in
the country, comprising of approximately 70% of the entire office stock (including IT parks and special
economic zones).
As the IT industry grows in size, the demand for commercial real estate is likely to increase. This provides
a significant opportunity for real estate developers to step in to meet the requirements of this sector.
A CREDAI and CBRE InitiativeGrowth in the IT/ITeS Industry to Impact Commercial Real Estate Demand
8
7.5
120 7.1 8%
6.7 6.5
6.4
7%
100
6%
80
5%
USD Billion
60 4%
101
40
88 3%
69 74
63 2%
20
1%
0 0%
2008 2009 2010 2011 2012
IT BPO Revenues Contribution to GDP(%)
Source: NASSCOM
1.5 Challenges and Government Intervention
Rapid urbanisation has fuelled inflow of massive population from the countryside and smaller towns
into the major cities of the country. In urban India, the population is increasing at a fast pace while
there exists a significant housing shortage. The public sector faces scarcity of resources and has limited
access to modern technology aimed at developing modern real estate at a mass scale within stipulated
timelines. Hence, involvement from the private sector is required to invest in research and development
of new technologies, systems and processes.
While the sector offers ample opportunities for development across verticals, there are certain intrinsic
challenges that hinder growth of the sector. Factors such as high borrowing costs for developers, lack
of institutional funding, liquidity issues and slow (and uneven) development of urban infrastructure are
some of the key challenges facing the sector. Foreign investment is also a critical factor primarily on
account of the capital intensive nature of the sector. While domestic financial institutions have been
willing to lend to developers for real estate development, their borrowing costs are high and regulations
are very stringent. Unlike developed nations, India still does not allow concepts such as real estate
mutual funds and investment trusts. Such challenges limit the sources of funding for the sector, which in
turn restrict private sector involvement in large scale construction activity in the country.
Infrastructure development also plays a pivotal role in unlocking the potential of cities by decongesting
city centres and developing new suburban towns and cities. Increasing population and land paucity
continue to exert pressure on city limits, thereby highlighting the need for a balanced development
of infrastructure. Suburban towns have been mushrooming around key cities due to limited space
availability and high land prices in city centres. Hence, a multi-pronged approach is required that
aims at strengthening the delivery of urban infrastructure and ensure that infrastructure development
precedes real estate development in order to provide for more sustainable and self-sufficient cities. Fast
tracking approvals, execution and completion of urban infrastructure projects will enhance confidence
in private players and will allow for greater private sector participation in real estate development.
Hence, the government has sufficient scope for intervention as the real estate sector faces a number
of challenges that inhibit its performance. In the last few years we have seen the government taking
an active role in facilitating investments into the sector, especially in low income housing, besides
strengthening its resolve at propelling growth in urban as well as rural infrastructure. However, a key
prerequisite for accelerating growth in the sector is recognising it as a formal industry. This would entail
recognition of the scale of economic and employment opportunities generated by the sector, and its
linkage to a large number of ancillary industries. This economic footprint of the real estate sector has
been discussed in the second section of the report.
Assessing the Economic Impact of the Real Estate Sector02
9
ASSESSING THE
ECONOMIC FOOT PRINT
OF THE SECTOR
In order to assess the economic opportunities generated by every square feet of estimated real estate
space constructed in the country, CBRE conducted a broad study of leading construction component
sectors contributing to the growth in real estate space. The economic footprint of the sector has been
discussed in the key findings of the study mentioned below.
2.1 Key Findings
Key findings of the study have been discussed below.
Real Estate Pipeline for 201310
India has a total supply pipeline of close to 3.6 billion sq ft of real estate space to be completed in the
year 2013. This includes the following segments,
a. Approximately 200 million sq ft of organised investment grade commercial office, retail and
residential space
b. Approximately 3.4 billion sq ft of total urban permanent housing stock in the country for 201311
Consumption Estimates in Construction Component Sectors
Growth of the building materials industry is closely linked to real estate development.The estimated
consumption of certain construction component sectors, basis the supply pipeline lined up in 2013, has
been provided below.
Total Estimated Real Estate Supply in 2013 3.6 billion sq ft
Total Consumption of Iron & Steel 22 million Tonnes
Total Consumption of Cement 140 million Tonnes
Total Consumption of Bricks 49,000 million bricks
Total Consumption of Glass 1 million Tonnes
Total Consumption of Sand 102 million cubic meters
Total Consumption of Wood 4 million cubic meters
Source: CBRE Research, CREDAI
10. The real estate sector considered for this analysis does not include sub sectors such as infrastructure projects organized industrial,
hospitality, semi-investment grade retail and office space, residential in rural areas, etc.
A CREDAI and CBRE Initiative 11. Calculated basis statistics from the Census of India 201110
Economic Footprint of the Real Estate Sector in the year 2013
The economic opportunities generated by the estimated consumption of the selected construction
component sectors have been provided below.
Iron &
Economic Footprint Cement Bricks Glass Sand Wood Others
Steel
Potential Revenues
103,000 78,000 47,000 34,000 15,000 45,000 48,000
(INR Crores)
Investment Generated
87,000 70,000 18,000 4,000 7,000 35,000 33,000
(INR Crores)
Direct Employment
157,000 100,000 1,600,000 2,000 105,000 129,000 350,000
Generated
Potential employment generated on the building site during the construction of 3.6 billion sft
5,100,000
in 2013
Source: CBRE Research, CREDAI
2.2 Overall Economic Impact of the Real Estate Sector in the year 2013
Assuming industry standards for costs of construction for commercial office, retail and residential assets,
following is a broad estimate of the economic footprint of the real estate construction sector in the year
2013.
Total Estimated Real Estate Supply (2013) 3.6 billion sq ft
Total Revenue Potential of Real Estate Construction in 2013 INR 370,000 cr
12
Estimated Gross Domestic Product (2013) INR 5,833,685 cr
Estimated Contribution of Real Estate to Gross Domestic
6.3%
Product in 2013
Total Employment generated by the sector in 2013 7.6 million people
Total Investment generated by the sector in 2013 INR 254,000 cr
Source: CBRE Research, CREDAI
12. Estimated using Gross Domestic Product (2011-12) provided by MOSPI Assessing the Economic Impact of the Real Estate SectorAs highlighted above, the real estate sector is expected to contribute approximately 6.3% to the economy
11 in 2013-14. Additionally, this sector is expected to provide employment opportunities to about 7.6
million people during the same period.
This compares well with the contribution of other essential sectors such as Information Technology
(7.5%)13, Steel (2%)14, Electricity, Gas and Water Supply (2%)15, Mining and Quarrying (2%)16 and
Telecommunications (2%)17.
2.3 Expanding Economic Footprint of the Sector by 2025
India’s real estate sector is poised for significant growth in the coming decade as it benefits from
significant opportunities such as increasing urbanisation, demand for new housing and the expanding
urban fabric of tier II and tier III cities in the country. In order to understand the positioning of the sector
in the coming decade and the likely impact that it will have on the economy and employment, CBRE
arrived at certain broad-based projections for growth and spread of the sector till the year 2025. These
projections have been discussed in detail below.
• Growth in Economic Share
Share of the Real Estate Sector in India’s GDP from 2013 to 2025*
6.3%
13%
In 2013 In 2025
Source: CBRE Research, CREDAI
*covers organised office, retail, residential, unorganised residential (urban) only
The economic contribution of the real estate sector is projected to increase significantly during the
period, from 6.3% in 2013 to almost 13% in 2025. This spiralling of growth can be attributed
to the significant construction opportunities offered by the housing sector, largely accentuated by the
intensifying demand for residential space in the expanding urban limits of our cities.
• Expanding Employment Opportunities
Potential Employment Opportunities in the Real Estate Sector
from 2013 to 2025*
20 17.2
18
16.2
16 15.1
14.1
14 13.1
12.2
Million persons
12 11.4
10.6
9.9
10 7.6 9.2
8.6
7.9
8
6
4
2
0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Source: CBRE Research, CREDAI
*covers organised office, retail, residential, unorganised residential (urban) only
13. Indian Brand Equity Foundation
14. Secondary Research
15. Ministry of Statistics and Programme Implementation (MOSPI)
16. Ministry of Statistics and Programme Implementation (MOSPI)
A CREDAI and CBRE Initiative 17. Secondary ResearchThe real estate and construction sector would continue to remain one of the largest employers in the
economy. Annual employment opportunities generated in the sector are expected to increase by more 12
than 200%, from 7.6 million in 2013 to almost 17.2 million in 2025, offering tremendous
opportunities for socio-economic transformation in our urban centres and supporting the government
in bridging the employment gap in the country more effectively.
• Estimated Supply Pipeline
Real Estate Supply in India from 2013 to 2025
(in billion sq ft)*
8.2
9
8 7.8
7.2
7 6.7
6.3
5.8
6 5.5
5.1
5 4.7
Billion sft
3.6 4.4
4.1
4 3.8
3
2
1
0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Source: CBRE Research, CREDAI
*covers organised office, retail, residential, unorganised residential (urban) only
Increasing urbanisation, demand for new housing, expanding spread of organised real estate and
introduction of new construction technologies are some of the factors that are likely to be a pivot for
the growth of real estate construction activity in the country. The annual real estate supply in India is
expected to increase from about 3.6 billion sq ft in 2013 to about 8.2 billion sq ft in 2025.
Majority of this space is expected to be concentrated in the residential sector, with an underlying thought
that a sustained focus would be provided by the government not only towards bridging the existing
housing shortage in the country, but also towards developing new housing in the expanding urban limits
of our cities (especially the tier II and tier III cities).
2.4 Key Recommendations to Encourage the Real Estate Sector
As stated in the previous section, the economic impact of the real estate sector can expand to almost
13% in the coming decade, provided the government recognises the contribution this sector makes
to the country’s built environment and introduces relevant policy intervention to address impediments
restricting the sector in achieving its complete potential. Following are some key recommendations that
can help spur growth of the sector in the coming years.
Promotion of Affordable Housing
About 85% of India’s housing shortage of 18.4 million units in 2012 was concentrated in the EWS and
LIG sections. In order to bridge this gap, affordable housing schemes should be promoted across the
country, with active participation from the private sector. This will not only fuel construction activity across
the country, but also promote growth in allied industries such as construction materials.
Streamlining the approval process for affordable housing projects, augmenting the supply of land
at affordable prices and subsidising construction costs through investment in innovative construction
technologies are steps that will promote growth in this sector. Additionally, fiscal incentives for the private
sector such as increasing the fixed limit for raising funds through external commercial borrowings from
the present USD 1 billion and extending the interest subvention allowed on low cost housing loans will
continue to stimulate demand for affordable housing projects across the country. Other measures that
can be adopted include increasing allocation of funds for mass housing schemes such as the Indira
Awaas Yojana and the Jawaharlal Nehru National Urban Renewal Mission, increasing the reach of
micro-finance institutions and setting up of a risk fund to cover risks pertaining to loans provided to the
EWS/LIG sections.
Assessing the Economic Impact of the Real Estate SectorEasing Supply Bottlenecks
13 India’s rapid urbanisation has fuelled demand for housing and support services across the country.
However, the urban limits of our cities are often constrained by slow and uneven release of land parcels
for development. These supply bottlenecks can be resolved through concerted efforts such as permitting
higher density developments by increasing FSI norms, releasing land parcels for development on a
sustained basis and encouraging private participation in land aggregation. Recent steps taken by the
Delhi Development Authority (DDA) to implement a policy of land pooling in new development zones of
the city, allowing owners to cumulate their land parcels and develop the land jointly with private players
is an example of efficient management of supply dynamics in our urban centres.
Streamlining the Approval Process
The sector has been bogged down by multitude of regulatory approvals which need to be cleared by
developers to commence construction. Approvals regarding building layouts, ownership, environment
clearances, structural planning, utilities, amongst others, are time consuming, cumbersome and are
often delayed. The delays often result into an increase in costs which ultimately trickle down to the
buyers. Hence, it is important to facilitate policy measures that streamline approval processes (both
at state as well as at national level), which help in reducing the number of approvals required for real
estate projects. This can be enabled by establishing regulatory bodies/investment boards to oversee the
approval process for real estate projects, especially for large scale integrated townships.
Clarity and Support to Special Economic Zones
The recent initiative by the government to reduce minimum area restrictions for SEZs is likely to enhance
developer interest in SEZ projects. However, more needs to be done in this direction, in the form of
relaxation of the Minimum Alternate Tax (MAT) and the Dividend Distribution Tax (DDT) that have made
SEZs less attractive for developers as well as occupiers. Moreover, clarity should be provided on the
proposals in the upcoming Direct Tax Code (DTC) which do away with the income tax exemption given
to SEZs and instead link tax sops to investments.
Easing of Funding
New instruments of funding should be permitted for the sector, amongst the most prominent of which
are the Real Estate Investment Trusts (REITs). REITs could provide an additional exit route for investors
and enable retail money to be channelized into the sector through a regulated network. The introduction
of REITs would propel the sector by spurring capital inflows and bringing institutional credibility. Other
key steps that can be undertaken to promote funding for the sector include expanding the credit limit for
realty projects from the present 2.8% to as high as 25-30%, reducing borrowing costs for developers
(especially from banks and non-banking financial companies) and reduce the risk weightage attached
to the sector. These measures can be further supported if the government provides an infrastructure
status to real estate projects (particularly large integrated townships). This will help the sector in securing
long term loans at lower cost, and also avail the tax benefits provided to infrastructure sectors such as
power and railways.
Sustained Infrastructure Upgradation
Infrastructure upgradation is imperative for the spatial spread of real estate in the country. The development
of peripheral towns in India has largely been led by the private sector with public infrastructure not being
able to keep pace with development. Hence, for the country’s urban sprawl to flourish, a multi-pronged
approach is required that aims at strengthening the delivery of urban infrastructure and ensure that
infrastructure development precedes real estate development in order to provide for more sustainable
and self-sufficient cities. Fast tracking approvals, execution and completion of urban infrastructure
projects will instil confidence in private players and will allow for greater private sector participation in
real estate development.
Engaging Retail Investors
Easier investment norms should be provided for end users and investors for attracting investments in
the sector, especially in residential real estate. Reduced interest rates and decreasing the limit of margin
money requirement will attract more retail investors towards the sector and help propel real estate
demand.
A CREDAI and CBRE Initiative14
03
CONCLUSION
There is no doubt that India’s real estate sector is poised for significant growth, thriving upon opportunities
such as growth in income levels, increasing urbanisation and demand for new housing. With a share of
6.3% in the country’s Gross Domestic Product, the sector makes a sizeable impact on India’s economic
growth, both in terms of employment generation as well investment creation. However, this footprint is
restricted by numerous challenges inhibiting the sector such as high borrowing costs, lack of institutional
funding, lengthy approval processes and slow & uneven infrastructure development.
Once these bottlenecks are addressed, we can expect the economic contribution of the sector to increase
considerably, with its share of the GDP to more than double from 6.3% in 2013 to almost 13% by 2025.
This will be a direct consequence of the voluminous construction churn generated by the projected
completion of more than 8.2 billion sq ft of real estate space in 2025, up from about 3.6 billion sq ft
in 2013. Additionally, the sector is expected to contribute significantly towards bridging the employment
gap in the economy, by generating employment opportunities for almost 17 million people in 2025.
However, this projected expansion of the real estate sector can be achieved at an earlier stage before
2025, if the government provides relevant policy measures to create a more conducive environment for
growth in the sector. CBRE has provided a set of recommendations to assist the sector in achieving its
full potential in the long term. An effective implementation of these recommendations will undeniably
push the growth of the sector to a higher trajectory.
Once the bottlenecks concerning the sector are
removed, its share to the GDP might increase
from 6.3% in 2013 to about 13% by 2025.
Assessing the Economic Impact of the Real Estate Sector15
About CREDAI
Established in 1999, The Confederation of Real Estate Developers’ Associations of India better known as
CREDAI is the apex body for private real estate developers in India, representing over 9,000 developers
covering 22 states and 128 city chapters across the country. CREDAI has worked hard to make the
industry more organized and progressive by networking closely with government representatives, policy
makers, investors, finance companies, consumers and real estate professionals.
Following are the major objectives of CREDAI
• To perpetuate an ethical code of conduct, which is self – imposed and mandatory for all members,
to maintain integrity and transparency in the profession of real estate development
• To represent developers/builders across India by communicating and representing with government
authorities for the formulation of proactive policies for this profession
• To encourage and support the developments/builders to increase their efficiency in the development/
construction activities by introducing latest technologies
• To disseminate the data, statistics and other related information in this profession of real estate
development
• To promote the interest of construction workers and to educate them on the best practices
• To encourage research in the profession of construction and real estate development
• To facilitate easy housing finance availability by working in close coordination with the leading house
finance institutions and banks
Being on board of prestigious committees of the sector’s reforms like on the panel of ‘Housing and
Habitat Policy 2007’, ‘Steering Committee for Urban Developing’, the committee of ‘Housing and
Poverty Alleviation for the 11th Five-Year Plan’ along with various committees of the Bureau of Indian
Standards, Bureau of Energy Efficiency, Planning Commission and others have resulted in CREDAI’s
initiative of abolition of urban land ceiling, rationalization of stamp duty, the modification of the
environmental impact assessment rules, several amendments related to service tax, Land Acquisition
Policy and much more. CREDAI also represents the Steering Committee on Construction for the 12th
National Plan (2012-2017).
Linking private real estate developers to the government and customers through numerous initiatives
and activities, CREDAI’s success in bringing the majority of organized private real estate developers
under a single umbrella is a potent force that promises the rapid development of the realty sector, one
that knows itself as a major driver of India’s economic growth.
Confederation of Real Estate Developers’ Associations of India
CREDAI - National Secretariat, 703, Ansal Bhawan, 16, K.G. Marg, New Delhi – 110001
Ph: 011 - 43126200, 43126262, Fax : 011 - 43126211
Email: sghoshal@credai.org
www.credai.org
A CREDAI and CBRE Initiative16
CBRE Group, Inc.
CBRE Group, Inc. headquartered in Los Angeles, is the world’s largest commercial real estate services
firm (in terms of 2012 revenue). We are a Fortune 500 and S&P 500 company with unparalleled
intellectual capital, unmatched global capabilities, in depth local market knowledge, and a business
platform built on leadership in every major market.
CBRE was the first International Real Estate Services firm to set up an office in India in 1994. Since then
our operations have grown to include more than 2,800 professionals across 9 offices with a presence in
over 25 cities in India. As the leading real estate services firm, we provide our clients with a wide range
of real estate solutions including Strategic Consulting, Valuations/ Appraisals, Capital Markets, Agency
Services, Asset Services and Project Management.
Our guiding principle at CBRE is to provide tactical and strategic solutions that make real estate holdings
more productive and economically efficient. Every day, we partner with our clients to ensure that their
real estate strategy is aligned with their business strategy. And our RISE values—Respect, Integrity,
Service and Excellence—guide all our efforts. Our professionals are committed to providing the highest
quality offerings to developers, investors and occupiers—throughout India and around the world.
CBRE South Asia Pvt. Ltd.
Ground Floor, PTI Building
4 Parliament Street
New Delhi 110001
Ph: 91 11 42390200; Fax: 91 11 23317670
www.cbre.co.in
Assessing the Economic Impact of the Real Estate SectorContacts - CREDAI
Lalit Kumar Jain
Chairman (CREDAI)
Confederation of Real Estate Developers’ Associations of India
chairman@kul.co.in
Contacts - CBRE
Harish Nair Vidhi Dheri Amritha Marshall
Director (Consulting) Assistant Manager (Research) Manager
CBRE Consulting, India CBRE Consulting, India Corporate Communications
harish.nair@cbre.co.in vidhi.dheri@cbre.co.in CBRE South Asia Pvt. Ltd
amritha.marshall@cbre.co.in
Abhinav Joshi Sachi Goel
General Manager (Research) Senior Associate (Research)
CBRE Consulting, India CBRE Consulting, India
abhinav.joshi@cbre.co.in sachi.goel@cbre.co.in
CREDAI Disclaimer
Although every effort has been made in compiling and checking the information given in this publication to ensure that it is accurate, however the authors, the publishers and their employees or
agents shall not be held responsible for the continued accuracy of the information or for any errors, negligence or otherwise howsoever or for any consequence arising therefore.
CBRE Disclaimer
CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not
verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented
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