India’s Real Estate Set to Grow by 2030, Pioneering a Trillion-Dollar Transformation

India's Real Estate Market: A Sea of Potential Amidst Liquidity Challenges

Dr. (h.c) Tushar Deochakke highlights real estate's enduring appeal as a preferred investment, particularly for personal residences. The connection between a robust financial system and economic prosperity is well-established, with finance often following the path carved by entrepreneurial ventures. This viewpoint suggests that as economies grow, they naturally create a demand for diverse financial tools and mechanisms, which the financial system then fulfills.

Historically, economic expansion has been measured by the growth of industry, agriculture, and services. However, the trading market also emerges as a crucial player in capital generation, wielding considerable influence on the global economic landscape. Consequently, the stock market in burgeoning economies like India is experiencing rapid growth, with the nation's real estate sector projected to reach a multi-trillion dollar valuation by 2030. Efficient, liquid markets facilitate better capital allocation and strengthen long-term economic growth prospects by enabling extended and more lucrative investments. Blockchain technology for governance can further enhance market liquidity by reducing investment risk, subsequently encouraging heightened savings and investment.

Unlocking Value in Real Estate Assets

Real estate assets, often recorded at cost despite potentially higher market values, can gain broader trading exposure through platforms that connect them with a wider pool of investors. This enhanced accessibility and potential for cash flow generation can boost market capitalization and contribute significantly to both local and national economies via transactions and taxes levied on investments. India's property market is anticipated to grow fourfold in the coming 6-8 years. Infrastructure development alone will necessitate an estimated USD 4.5 trillion investment to sustain this trajectory and position India as the second-largest global economy by 2036.

REITs and the Conservative Indian Investor

Recent adjustments to REIT regulations aim to accommodate smaller asset holders. However, the inherent conservatism of Indian investors, who often view real estate as a hedge against market volatility, remains a significant factor. Despite a threefold increase in registered dormant accounts over the past five years, the active investor base for REITs remains comparatively limited. Although introduced in the 1960s, REITs still represent a small fraction (under 2%) of global real estate asset valuations.

Returns on investment from REITs for small investors have been underwhelming, while real estate developers, asset owners, and managers continue exploring funding avenues for new projects. Banks operate under sectoral lending restrictions. Paradoxically, Indians invest up to twenty lakh crores annually in fixed deposits, where inflation-adjusted returns are minimal. This contrasts with the approximately 188 lakh crore rupees held in fixed deposits across the Indian economy at the end of last year.

Untapped Potential of Retail Investors

The Jan-Dhan Yojna (Banking for the Poorest of the Poor) initiative, initially met with skepticism, amassed two lakh crore rupees in a short period, demonstrating the potential impact of retail investment. This example highlights the potential contribution middle-class retail investors could make to the economy if provided with the right avenues. While global fund managers are increasing their allocation to India, it still constitutes a modest portion of their global portfolios. This renewed interest follows the establishment of the National Asset Monetisation Pipeline and the National Bank for Infrastructure Development by the Ministry of Finance.

Challenges for Global Investment and the Role of RERA

Global pension and private equity funds face challenges in India, including lengthy repatriation processes for strategic exits, sometimes spanning decades. RERA has significantly altered the landscape for global fund managers considering early-stage project investments. 'Promoter' status under RERA carries substantial responsibilities, including regulatory filings, obtaining certificates, and project oversight, with significant penalties for non-compliance. While investment agreements typically provide investors with broad protective rights, structuring investments to minimize involvement in daily operations and project implementation is now a prudent strategy.

Modernization Imperative for Real Estate

While other sectors embrace digital transformation, real estate markets lag, relying on outdated practices for asset management, trading, and settlement. This is particularly evident in property markets, which often employ manual, time-consuming methods. Consequently, the real estate market grapples with illiquidity and inaccessibility, hindering its full potential.