Real Estate To Expand At $5.8 Trillion, Here’s What Investors Must Know

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In its latest report, ‘India Real Estate: Vision 2047’, Knight Frank India, the real estate consultancy in the country, in association of NAREDCO, has projected that India’s real estate sector is expected to expand to USD 5.8 trillion (trillion) or USD 5,833 billion (billion) by 2047. This estimated real estate output value will contribute 15.5% to the total economic output in 2047 from an existing share of 7.3%.

By 2047, when India reaches 100 years of independence, the size of India’s economy is estimated to range between USD 33 trn to USD 40 trn.

For study purposes, Knight Frank took the mean estimated growth of the Indian economy to value USD 36.4 trn by 2047.

Report Highlights

The report said that private equity (PE) investments in the Indian real estate sector have consistently grown over the past two decades. Projections for 2023 indicate that PE investments in Indian real estate are poised to reach USD 5.6 bn, reflecting a YoY growth of 5.3%.

With India’s GDP expected to reach USD 36.4 trn by 2047, the private equity investments within the Indian real estate sector are projected to surge to USD 54.3 bn by 2047, signifying a CAGR of 9.5% spanning 2023 to 2047.

Providing perspective on REITs, Knight Frank shared that the combined portfolio of Indian REITs encompasses 84.9 mn sq ft, with 75.9 mn sq ft dedicated to office assets and 9 mn sq ft to retail assets. Additionally, there is ongoing construction of approximately 21.3 mn sq ft within the REITs sector, projected to reach completion within 1-2 years.

Rajan Bandelkar, president, NAREDCO India, said, “Vision 2047, not just for NAREDCO but for Indian Real Estate, is about the roadmap of India’s economic growth, and the role of real estate as one of the leading engines of that growth story.”

Details of estimated growth potential across RE asset classes by 2047

Residential

According to Knight Frank India, in the next 25 years, cumulatively there will be an estimated 230 million (23 crores) units of housing requirement in India. In terms of market value, the residential market has a potential to generate an output equivalent of USD 3.5 trn in 2047.

It is expected that with the changing income profiles, the demand for housing will emerge across all the price categories. In the next few years, while the demand for housing will remain concentrated in affordable housing, it will gradually shift towards mid segment and luxury housing.

The share of lower income households will reduce from existing 43% currently to 9% in 2047. Thus, a significant share of the population will shift to lower middle and upper middle-income categories. This will enable a significant demand for mid-segment housing.

Additionally, the share of HNIs and UHNIs households in India which will likely increase from existing 3% to 9% in 2047 will generate a significant demand for luxury housing in India.

Office

As per Knight Frank estimates, 69% of the working population will be formally employed to support the economic expansion of US$ 36 trn by 2047. In terms of market value, the estimated office stock is likely to generate a potential output equivalent to USD 473 bn in 2047.

The office stock has grown significantly from 278 mn sq ft in 2008 to 898 mn sq ft cumulatively across the leading eight cities in India in 2022.

Shishir Baijal, chairman & MD, Knight Frank India, said, “The next 25 years are going to witness a dramatic transformation in the Indian economy and the real estate sector. Factors like demographic advantages, improving business and investment sentiments, and government policy push towards high-value output sectors such as manufacturing, infrastructure etc. will robustly support the economic expansion of India.”

“In the imminent future, India’s economy is expected to grow at a rapid pace, and the structural shift in the economy will be led by a major push to the growth of all sectors including real estate. For sustainable growth, it is imperative that India’s real estate sector adapts to transformations in the economy and changing technologies, making optimum use of the growing resources, especially the human capital,” Baijal added.

Warehousing

Spurred by the high degree of correlation between the economic growth and increase in income levels, India’s warehousing market is likely to witness a potential demand for 159 mn sq ft by the year 2047. India’s warehousing sector has a potential to generate an output equivalent to USD 34 bn in 2047.

In a separate section of the report on the impetus of the manufacturing sector to industrial development, Knight Frank estimates that by 2047, at an average pace of growth India’s manufacturing sector is likely to contribute 32% to the country’s economic growth.

As of 2021, 5 lakh hectares of land in India has been under usage for industrial purposes which comprises 3,989 special economic zones, industrial parks and estates etc.

To cater to the manufacturing activities in the economy in the next 25 years, an estimated 102 lakh hectares of land is required for usage of industrial activities in India.

The exponential growth in required industrial land has a capacity to generate a revenue equivalent to USD 110 bn in 2047..

Rise of REIT

With the initial REITs setting a positive precedent, it is probable that REITs in the coming years will expand into diverse sectors such as residential and warehousing, in addition to the existing office and retail segments. Inspired by global markets, developers are likely to contemplate venturing into REITs for alternative asset classes like data centres, hospitality, healthcare, education and more, in the longer term over the next 25 years.

Retail

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As per Knight Frank estimates, organised retail consumption is currently estimated to be at 4.6% of the total private consumption of individuals. This is significantly smaller when compared to developed markets such as the US, where retail consumption comprises 40% of the total private consumption of individuals.

However, with growing income levels and the growing propensity of households in India to consume, by 2047, when the size of the Indian economy is estimated to be USD 36.4 trillion, the share of retail consumption is estimated to be 37% of the total private consumption. This quantum of consumption boost will support the entry and expansion of retailers in India and provide an impetus to the retail real estate both for the shopping malls and the high streets.

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