December 2019: A lot of the younger millennials today have grown up seeing their parents save up to buy a house of their own; moving out from the cramped quarters, be it parental homes or rented apartments, finding a lease of life in a space they can claim to be truly theirs. For Indians, home has always been where the heart lay, explaining much of their aspiration for home ownership over the past few decades.
As globalization spread its wings and rapid urbanisation took root, more and more Indians began to move out from their childhood small towns to cities bustling with socio-economic opportunities. In many cases, home ownership became tantamount to a status symbol in itself, as more and more marital alliances came to be forged on the basis of what real estate one owned.
Our economy saw an upsurge in the growth of the real estate industry throughout the first decade of 2010 and beyond, with the market flooded with the likes of new apartments, office spaces, plots of land, and standalone houses. As long as the boom lasted, there was little difficulty in selling these to aspiring homeowners and rising businesses.
However, once the American real estate crisis spread to this side of the globe, builders found themselves struggling with a growing pile of unsold inventory. Liquidity crunch and bankruptcy plagued many of the players in the space, leaving them gasping for breath. Fortunately, however, the RERA Act came soon enough in 2016, protecting the rights of home buyers while successfully steering the course of the Indian real estate industry towards a new path of growth.
Tracing the changing contours of the Indian real estate sector
The space, as it stands now, is evolving fast to accommodate global trends in a modern Indian framework. Indians are no longer guided by plain old sentiments while purchasing a plot of land, an apartment or office space. Neither are they prone to buying houses just for staying-in themselves.
Buyers today are far more strategic in making purchase decisions as they are in a very different situation from buyers of a previous generation, who could count on getting 25-30% annual appreciation on their real estate holdings. The appreciation rate has now come down to 10-15% annually, and yet that has not deterred Indians from investing in the real estate space. Instead, most of them have chosen to modify their approach. They have recognized the value of long term investments over a period of at least 5 to 10 years, with a multitude of combinations at play.
- People’s rising preference for rented apartments over purchased homes:
One of the most significant shifts in consumer attitude that has happened over the recent years is their increasing inclination to rent homes rather than buy them. Even with Indian rental yields being some of the lowest in the world at around 2-3% at present, we are seeing an upswing in those numbers thanks to the rising demand.
- Investors are backing premium commercial buildings:
While investors in the last couple of decades had been partial to residential skyscrapers, the new age investing mentality has developed a taste for premium commercial spaces. In contrast to the profits made off selling residential apartments and earning significant increases over the booking amounts, investors today have struck gold by feeding the burgeoning demand for high profile office spaces in Indian metros. With lease incomes skyrocketing from these properties, builders are also veering away from residential into the commercial market.
- Home owners investing in a second apartment for generating rental income:
Small investors or ordinary homeowners with disposable incomes today are increasingly buying extra homes to be rented out to the constantly shifting set of millennials moving from one city to another in search of educational and employment opportunities. Many of these owners are choosing to convert their properties into paying guest accommodations or serviced apartments to meet the rising demand for rental homes and generate high incomes from savvy young professionals looking for hassle-free stays in a new city.
- Rise of co-working, co-living and managed housing companies:
The Indian cultural fabric has long been rife with conflicts between tenants and landlords, which have only served to hamper the growth of the immensely promising real estate market. Of late, however, the emergence of third party aggregators and housing companies have eased a lot of these tensions.
Many of these companies have been smart enough to identify critical gaps in the market, and have surfaced with the promise of flexibility and comfort to mediate between owners and tenants. Some have come up with a smooth interface between hoteliers and hassled travelers while others have chalked out plans to double its co-working spaces in India.
India’s real estate space is now an even playing field for those looking to reap in long term returns even as profits continue to dry up for short term opportunists. If anything, that is an indication of the market maturing steadily, with both investors and first time buyers being bullish on its growth prospects.