While a lot of impetus is being given to developing India into a global manufacturing hub, the role of the domestic real estate sector in generating employment, adding real economic value, and its add-on effect on other industries is often overlooked. In fact, the real estate industry is the second-largest employment generator after agriculture and has been contributing about 11% to Gross Value Added (GVA) growth since 2011-12. A critical engine of growth and employment, with both forward and backward linkages, it is estimated that nearly 50% of India’s GDP is linked with the domestic real estate sector.
Employing a large labour force in nation building
Construction and allied activities absorb a large number of skilled and unskilled workforce, with many being employed from rural hinterlands where agriculture continues to remain the only source of employment. According to conservative estimates, nearly 70 million Indians are employed in the real estate sector as of 2022, with the overall sector slated to surpass the $1 trillion mark by 2030. What’s more, with the implementation of the RERA Act, sprucing up of labour laws, and a stark improvement in overall compliance, those engaged in the Indian real estate sector are benefiting from the large strides being made in recent years.
Providing demand for key supplier and ancillary services industries
With more than 270 allied industries being dependent on the real estate sector for business sustenance, this important sector has an important add-on effect along the entire supply chain. Key supplier industries like steel, cement, timber, and construction materials as well as ancillary services industries such as design, contracting, facility management, leasing & property consultancy are some prime examples. As activity in the real estate sector ramps up, there will be a wider positive multiplier effect on associated industries and those engaged in them.
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Driving rapid urbanization with critical housing and commercial infrastructure
The rapid pace of urbanization has been a key driver of India’s economic growth over the past few decades, with urban centres such as Bengaluru, Mumbai, NCR, Pune, and Hyderabad attracting human and economic capital en masse. The real estate sector in conjunction with local governments, private developers, and infrastructure companies has played a key role in this transformation. With India slated to reap the benefits of its rich demographic dividend till at least 2050, the task of sustaining this rate of urbanization and creating the necessary infrastructure to support the country’s large young workforce will fall on the Indian real estate sector. Moreover, premiums, development and approval charges accruing from real estate related activity will continue to be a major revenue source for local government bodies and state governments, facilitating further socioeconomic development across the length and breadth of the country.
Facilitating large foreign investment inflows that drive further growth
With the real estate sector providing important infrastructure that remains pivotal to fuelling the Indian growth story, high-quality real estate projects and firms involved in their construction are attracting strategic and foreign investments in the country today. Capital inflows from marquee private equity (PE) firms and other foreign entities swelled to $24 billion between 2017 and 21, recording a 200% growth as compared to the preceding five-year period. Verticals such as warehousing, industrial parks, and data centres are also expected to give the Indian economy a much-needed boost as both domestic and international players rush to set up their distribution centres in the country today.
An important asset class and source of wealth for millions of Indians
As more Indians are deploying their savings into wealth creation avenues that can also significantly improve their lifestyle, both residential and commercial real estate are increasingly gaining precedence over other traditional asset classes like fixed deposits or gold. In fact, the real estate sector has traditionally been a major asset class and source of wealth creation for Indians, with new-age products such as REITs appealing to younger investors who are still not ready to buy their first home. The real estate sector remains a key source to channel savings for crores of Indian households, with recent improvements in the regulatory environment only adding to consumer confidence.
(By Hari Movva, Senior Vice President, SILA)