The year 2023 has proven to be a pivotal turning point for India’s residential real estate sector, building on the momentum generated by the remarkable comeback witnessed in 2022. Beyond being solely reflective of the middle class’s increased earning potential and evolving aspirations, the sector’s expansion owes much to the instrumental role played by governmental policies and regulations. A surge in foreign direct investment further underscores global confidence in India’s growth story. Interestingly, the growth narrative of India’s residential real estate extends beyond the metros, as tier 2 markets gained significant momentum in 2023.
Dwelling deeper, industry reports paint a promising picture, indicating that the property market is poised for a robust compound annual growth rate of 9.2% from 2023 to 2028. Projected growth to USD 1 trillion by 2030 reflects the magnitude of the sector’s anticipated impact. Additionally, the sector is projected to contribute 13% to the country’s total GDP by 2025. Data suggests that the top seven cities have so far witnessed a 36 percent increase in the number of units sold and a 48 % increase in the total sale value compared to the previous year. The third quarter of 2023 saw its greatest housing demand in six years with over 120000 residential units sold in the top metro markets. Further highlighting the strong potential of the real estate market, institutional investments have grown by 27 % reaching $4.6 billion in the first three quarters of 2023.
Key trends that have impacted the real estate sector in 2023 are the continued demand for larger premium homes indicating a paradigm shift in consumer preferences, as well as an increase in demand for homes in tier-2 and smaller towns resulting in heightened economic growth and infrastructure development in these regions.
In a post-pandemic landscape and In spite of the increasing repo rate in 2023, housing preferences have leaned heavily towards more spacious properties.Hyderabad is experiencing a significant surge in demand, particularly for 2.5 to 3-bedroom units or larger with a budget of over Rs. 1 Crore. The current pause in repo rate hikes has only amplified this trend. Notably, emerging investment destinations such as Hyderabad, Bangalore & Chennai have risen to prominence due to factors like enhanced connectivity, growing opportunities, and well-planned infrastructure.
The robust demand has triggered an increase in residential prices across major markets. Furthermore, the resilience of Tier 1 cities is evident, with noticeable increases in rental prices and heightened office space consumption. Furthermore, the current emphasis on developing robust infrastructure across India along with significant workforce migrations driven by a lower cost of living, improved work-life balance, and affordable housing options presents a remarkable real estate investment opportunity in the emerging tier-2 and tier-3 cities, as they establish their distinctive economic identities. We anticipate a steeper growth trajectory in smaller towns, as these regions take the lead in fostering development and complementing the success of established areas. We foresee an increase in real estate prices within these towns due to heightened commercialisation and greater economic activity.This shift has garnered increased attention from developers and state governments, leading to the structured development of real estate markets in smaller cities.
While the residential real estate market basks in its success, the commercial real estate segment grapples with adversity, marked by elevated vacancy rates and sluggish rent growth. Despite certain employers insisting on in-person work and a decline in remote job opportunities, the office sector remains ensnared in challenges. However, the Industrial, Logistics & Warehouse, Retail & Hospitality, Datacenters segments maintain their upward trajectory, steadily gaining momentum considering investments.
Lastly, in the era of rapid technological progress, consumer preferences are undergoing a significant transformation that extends beyond a mere inclination towards luxury. A noteworthy shift in demand is observed, with an increasing desire for smart homes becoming prevalent. Simultaneously, there is a growing emphasis on sustainable homes, accentuating the importance of eco-friendly materials, provisions for sustainable living, and the prudent utilization of resources. This evolving trend has spurred real estate players to fully embrace this change, wholeheartedly aligning their projects with sustainability goals. In response to the rising environmental consciousness among homebuyers, developers are actively incorporating eco-friendly features and sustainable practices into their designs, thereby contributing to a more environmentally responsible and future-oriented real estate landscape.
As we approach 2024, the Indian real estate market stands at the threshold of a promising era. The convergence of economic stability, government reforms, reviving wallet spends, renewed interest from NRIs, FDI gaining traction, and technological advancements has created an environment conducive to sustained growth and prosperity. Despite the prevailing challenges of increasing interest rates and global economic headwinds, it is noteworthy that residential demand continued to soar to unprecedented levels across the top cities in 2023 and is anticipated to continue throughout 2024. The sector is poised to continue playing a pivotal role in shaping India’s urban and economic future, setting the stage for sustainable development and increased opportunities for all.