The slowdown in the Indian real estate industry caused on the back of the Global Financial Crisis of 2008 has come as a saviour for the industry today, providing shoots of green and an edge over global markets even as recession fears loom over the Indian economy. The presence of healthy levels of unsold inventory coupled with decadal low home loan interest rates till last year has contained any significant price rise in India as demand rises, unlike global markets where the surge in demand has been accompanied by a spike in prices, resulting in fears of the forming of a housing bubble. The vacuum created by the COVID-19 pandemic also helped the industry generate demand, thereby bringing unsold stocks across key cities under healthy limits.

According to industry estimates, India’s unsold residential real estate inventory in 2022 stood at around 7.85 lakh units for the top 8 cities which would ideally take nearly 3 years (11 quarters) to be cleared. The unsold inventory count stood at 7 lakh units in 2014. At the same time, home loan interest rates were at their lowest in the last decade starting at 6.4% and while it currently stands at 8.75%, it’s unlikely it’ll move further.

The year 2022 saw gross absorption of office spaces reach 50. 3 mn sq ft, a 53% increase YoY, the highest in any year, according to Colliers.

These factors have made the residential and commercial real estate segments one of the most promising investment options for both investors and buyers while contributing to the economic growth of the country. The government has also set up the SWAMIH (Special Window for Affordable & Mid-Income Housing) fund to help in funding stuck projects in the affordable housing segment.

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However, there is going to be a marked shift in the Indian real estate industry with customers changing the way they live, work, and access entertainment. This also ties into the fact that a third of the workforce globally by 2030 will be occupied by Generation Z (those born between 1997 and 2012) who have different needs and requirements.

From large apartments housing an office to shared workspaces, the industry will go through a significant overhaul in the coming decade. Industry estimates suggest that the share of shared workspaces increased to Flex space share for 2022 was 14% of the total leasing which used to be in single digits a few years ago, indicating growing demand for flexible workspaces. Similarly, home buyers in the top 8 cities including Bengaluru, Mumbai and Delhi are now looking for bigger units to ensure adequate space and comfort.

This should be the driving force for realtors to continue to experiment with newer solutions- from developing technology-enabled smart homes to building a wider presence of smaller smart satellite offices across cities to enable employees to work closer to their accommodation, thereby reducing commute time.

In order to achieve this, it would require significant investments from realtors and domestic and global investors to tap into one of the largest real estate industries in the world as there has been a drastic shift in customer preferences and choices.

According to Colliers, institutional investments in Indian real estate touched USD4.9bn during 2022, a rise of 20% YoY during the year. This reflects the confidence of foreign institutional investors in the robustness and growth prospects of the Indian real estate industry which has withstood the test of time. While office and logistics captured a significant chunk of investments, investors are likely to be equally focused on the residential segment owing to the renewed interest and greater importance accorded by buyers post-COVID.

(By Piyush Gupta, Managing Director, Capital Markets and Investment Services, Colliers India)