Indian commercial real estate 2016 vs.2017

India, popularly known for her never ending population and pollution, slapdash politics, democracy and diversity, is emerging as a hotspot for both manufacturing and investment. Our country has risen as a perfect business spot in the rampant global economic turmoil.

Infrastructure and real estate are two very crucial sectors for any developing economy. Stimulated by a number of positive factors, real estate sector has seen massive growth in recent times and proposed to grow further in coming years.

It is the second-largest employment-generating sector after agriculture and has contributed 7.4% to India’s GDP in 2014-15 as per the Economic Survey of 2015-16. According to industry analysts, among other sectors, real estate services (categorized alongside financial, insurance and professional services) registered an annual growth of 9.4%, accounting for about 23% of the quarterly GDP recorded for the period.  

Real estate ownership in India is fragmentary and is divided into organized players, unorganised players and small developers. All the sectors have immensely contributed towards the development of the sector as a whole with commercial sector being the foremost driver.

Assisted by the strong government policies and reforms, commercial sector has seen an upturn in the current year. Recent announcements in the sector such as RERA and the exemption of Dividend Distribution Tax (DDT) has boosted not only investors’ sentiments but also enticed huge foreign investment into the sector.

According to industry reports, here is the quick list of changes that took place in commercial real estate sector in 2016:

•     Office space leasing surpassed the 50 million square feet (msf.) mark in 2015 in the top eight cities
• Total FDI in the construction sector, from April 2000-March 2016 stood at US$ 24.188 billion.
• During April 2000-March 2016, total cumulative inflows in the construction development sector accounted for 8.4 per cent of total inflows into the country.
• This year we all have witnessed that the sector is moving from an investor-driven to an end-user driven cycle.
• Large number of MNCs and blue-chip companies were seen purchasing office space in both ready for fit-outs and under construction buildings in top most cities for self-use and investment purposes.
• Companies such as IT and ITeS, retail, consulting and e-commerce have also seen registering high demand for office space in recent times
• Private Equity (PE) investments from foreign funds in the Indian realty market increased at a Compound Annual Growth Rate (CAGR) of 33 per cent to US$2,220 million in year ending December 2015.
• Transaction sizes have improved in 2016, and commercial projects have attracted a substantial amount of capital.
• Delhi-NCR remained the biggest office market occupiers with 88 million sqft out of 110 million sqft of land.
• The Make in India initiative has helped to accelerate leasing of commercial property by the manufacturing sector, which has outpaced the Information Technology (IT) sector by registering two-fold increase in office transacted space in the first six months of 2016.
• The introduction of 100% FDI under the automatic route has attracted large number of foreign investors in to the sector
• With the introduction of the Real Estate Regulatory Act (RERA) and Benami Transactions bill in place, the risk factor formerly associated with the sector has been reduced up to a greater limit.
• The much awaited the Goods and Services Tax (GST) is all set to be implemented and the recent demonetization move to clamp down black money hoarders from the sector has brought transparency and correction in real estate valuations

India being accounted for half of Asia’s total office leasing itself substantiates the enormous growth of the commercial sector in the country. Commercial real estate is growing significantly, providing the much-needed infrastructure for India’s growing needs. The segment is expected to witness an upswing in 2017 with leasing activity improving in the country. The recent government’s policy announcements are believed to play strategic role in coming years (2017 ahead) in removing major inconsistencies from the system. The Indian real estate market is expected to touch US$ 180 billion by 2020.

Last but not the least, with demonetization move, the sector is proposed to see transparent dealings, leading to a very strong foundation for long-term growth. The organized segment is expected to gain strength with more emphasis on cashless transactions. Real Estate Investment Trusts (REITs) are likely to maintain positive earnings growth in the coming year. Hence we can see that, the government’s incessant focus to upsurge the comfort of doing business in India by introducing investor- friendly policies will definitely going to unravel the development potential of commercial real estate sector in 2017.