Real Estate Sector in India- Challenges and Opportunities

SUBMITTED TO:

Dr. Eritriya Roy

Assistant Professor, Economics

HNLU, Raipur

SUBMITTED BY:

Abhijeet Audichya

B.A.LL. B(Hons.)

SEMESTER I, SECTION-A

Submitted On:

January 15, 2021

HIDAYATULLAH NATIONAL LAW UNIVERSITY

Uparwara Post, Naya Raipur-492002(C.G.)
 DECLARATION:

I hereby declare that this project work titled “Real estate sector in India – Challenges and
Opportunities” is my own work done under the able guidance of Dr. Eritriya Roy, Faculty
Member, HNLU. It represents my own ideas, and where others’ ideas or words have been
included, I have adequately cited and referenced the original sources.

I also declare that I have adhered to all principles of academic honesty and integrity and have
not misrepresented or fabricated or falsified any idea /fact/source in my submission.

Abhijeet Audichya

Semester 1

Roll No.-1

B.A.LL. B

Section A

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 ACKNOWLEDGEMENTS:

First and foremost, I would like to thank my faculty of Economics- Asst. Prof. Dr. Eritriya Roy
for giving me this wonderful opportunity to work on this project titled “Real estate sector in
India – Challenges and Opportunities”. Her guidance and support were very crucial for the
successful completion of this project.

I also want to express my gratitude to all the authors, writers and columnists whose ideas and
works have been used in this project. I also thank all the staff and IT team of HNLU for the
resources in the form of E-library for the useful research in the subject matter of this project.

Last but not least, my heartfelt gratitude goes to my parents, seniors and friends who have given
their precious inputs in this project.

I hope you will appreciate my efforts and give your precious comments for the same.

Abhijeet Audichya

Semester 1

Roll No.-1

B.A.LL. B

Section A

II
 TABLE OF CONTENTS

S.NO TOPIC PAGE NO.

1. Declaration I

2. Acknowledgement II

3. Introduction 1

4. Objectives of Study 2

5. Research Methodology 2

6. Scope of Study 2

7. Chapter 1- Overview of and Factors affecting Real estate 3

sector in India
8. Chapter 2- Importance of Real Estate Sector in India 7

9. Chapter 3- Challenges in front of Real Estate in India 9

10. Chapter 4- Future Opportunities for Real Estate in India 13

11. Conclusion 15

12. References 16

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 INTRODUCTION:

A combination of land and utility systems is known as real estate. It includes but is not limited
to land, houses, buildings and roads. It basically is the actual estate or property of a person.
There are many types of Real estate. Out of these, each has a specific utility and purpose.
Broadly speaking, there are 4 types of real estate-

1. Land- It basically refers to the undeveloped and unutilized property which is capable of
being utilized. For e.g., a person buys a plot but does not develop a structure over it. This will
come under the category of ‘Land’ under real estate.

2. Residential- As the name suggests, residential real estate refers to those buildings or
dwellings where the people can live. These buildings are pre-prepared and the people or
families who want to reside here can invest their money and buy it.

Also, some people buy these buildings when the prices are low and later when the prices shot
up, they sell it off to earn profit.

3. Commercial- Small or Large businesses use this type of real estate as a workspace. These
businesses require offices in several towns due to which they have to buy some land or building
from which they can operate. They also buy pre-prepared buildings as buying land and
thereafter developing building on it will only add up to their increasing costs.

4. Industrial- It includes the properties that act as factory outlets, headquarters, production
outlets and regional offices for local as well as international companies.

In the coming pages we will be discussing in detail about this sector with special reference to
the Real estate market of India.

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OBJECTIVES OF THE STUDY:

1. To find out about the real estate sector and its importance in the Indian scenario.

2. To explore the significance of real estate sector in the GDP of India

3. To analyze the challenges posed in front of the real estate sector

4. To examine the opportunities for the real estate sector in coming future in India

RESEARCH METHODOLOGY:
The project is non-empirical in nature. The project employs secondary sources for fulfilment
of the objectives of the study. The project is descriptive and analytical in nature and various
literatures have been covered from journals, news websites, books, various published reports,
published research works etc.

SCOPE OF STUDY:
As the project employs secondary data, availability of the accurate and primary data becomes
an impediment to the study. And as the project is non-empirical in nature, first hand data and
experiences are not taken as a part of the study. The pandemic situation and internet
connectivity also come as a serious limitation to the research.

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 Chapter 1- Overview of and Factors affecting
Real estate sector in India

Real estate is considered as one of the most important sectors in any country’s economy. This
is because a large portion of the investment in the real estate market comes through Foreign
Direct Investment (FDI). It brings in much-needed foreign exchange which is needed for
continuous import and export of goods and services.

It also plays a pivotal role in enhancing the Indian economy and increasing employment
opportunities in India.

Over the past few years, India has provided ample opportunities in the form of favourable
legislations and price reductions to increase the market investment of Real estate sector.

In terms of employment percentage and investment value, Indian Real Estate sector is
considered among the largest real estate markets across the world.

Factors affecting Real Estate Sector in India-

Real estate sector, all across the world, depends on various factors that collectively make or
break it. We will be briefly discussing about these factors in the coming pages. Each and every
factor has its own importance.

These factors are not limited to India only but are mostly universal in nature i.e., affect real
estate irrespective of any geographical region.

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The various factors affecting real estate sector across the world are as follows-

1. Demographics-

This factor is itself a set of many factors that are a part of human life and collectively form a
prominent factor affecting real estate. These standards that comprise the Demographics section
are-

• Age
• Education
• Migration Patterns
• Employment
• Income

For e.g. If a decent percentage of population has proper education on real estate and property
prices, is formally employed and gets a decent income, is of the age which is considered good
for investment like retiring age; they will invest in real estate properly and investment in real
estate market will increase. And the population should not be, preferably, nomadic.

On the contrary, if the population does not possess the above-mentioned qualities then this may
lead to decrease in the investment in real estate sector.

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2. Interest Rates-

The interest rates of loan by the bank are inversely proportional to the investment in the real
estate market.

So, when the interest rates are high, the real estate sector usually get less investment whereas
when the rates are low, it flourishes. The process involved-

Usually to invest in real estate, people take loans from the banks. These banks charge an interest
on the money given. So, if the interest rates of the banks are high, people won’t take loans from
the banks.

This will lead to a reduction in the money flow in the market. Due to this, people don’t invest
in the real estate sector. This is the reason behind the above-mentioned phenomenon.

3. Government subsidies and Schemes-

The government legislations and policies play a pivotal role in regulating the real estate sector.
These legislations provide some relief and subsidies to the intended investors. This leads to
developing of new factories and companies in India.

This further leads to employment and rise of income of the people living near or around the
factory. This shoots the return value of the land in terms of investing. Due to this, people invest
in the land holdings of that area.

This increases the investment in the real estate sector. The government also gives tax
deductions and required infrastructure through the Annual Budget to the companies so that they
invest in the real estate market.

We will be talking about these government schemes and policies in detail in the coming
sections.

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4. Economy of the Nation-

The country’s economy plays an important role in the investment into the real estate sector. If
the economy of the nation is on a right track i.e. the country’s GDP growth, value of GDP, and
money flow are above average and the poverty is below average, the country is more likely to
have a satisfactory real estate sector.

This is due to the fact that the foreign companies get attracted towards those countries where
there is a security of getting high returns. Also, if the purchasing power of the people of a nation
is high, they are more likely to invest their money rather than keeping it. This increases the
investment in the real estate market.

5. Location

After taking into account all the above-mentioned factors, the main decision of investing the
money in the real estate market sector gets boiled down to the fact that whether the location is
safe to invest.

For e.g., the area around the land (in which money is to be invested) should be equipped with
up to the mark infrastructure and employment opportunities.

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 Chapter 2- Importance of Real Estate Sector
in India

When it comes to the importance of the real estate sector in India, we will be mainly focusing
on 2 major aspects in which real estate sector is most significant. They are-

1. Employment Opportunities

As already discussed, Real estate sector is the 2nd highest job providing sector in India
with 12% of the total workforce after agriculture. “This sector is going to provide 15
million jobs in the coming 5 years i.e., 2022”, as stated in Economic survey 2017-2018.

Also, the number of jobs provided by this sector till 2017 is approximately 5.1 crore.
After the rollover of the Pradhan Mantri Awas Yojana which is one of the largest
housing schemes ever offered by the government of India, this sector is expected to
create more and more jobs in the coming time.

Now, we will be talking about the different types of jobs created by Real Estate Sector.

• Developers- These types of people buy the land and initiate or finance the real
estate projects.
• Sales and marketing agents- They work along with the developers for the
purpose of selling and advertising the projects.
• Brokers- These are basically the middlemen who try to find the best possible
deal for both, the dealers and the buyers.
• Money Lenders- as the name states, they provide people with housing loans so
as to facilitate the buying of the land or property.
• Property managers- They help the developers in renting the properties. Also,
their work is to collect the rent and fixing the faults if any.

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2. Contribution to the Indian Gross Domestic Product (GDP)

Gross Domestic Product is the sum total of all the finished goods and services produced
within a country’s border within a given time span. Indian GDP is the 5th largest in the
world. Its value is Rs. 2.72 lakh crore.

Real estate sector is one of the largest contributors to the Indian GDP. It ranges from
6.5-8 % of the total GDP of India which means the contribution of the real estate sector
is roughly Rs. 20,000 crores every year. This is because of the continuously developing
cities and introduction of residential projects every year.

According to NITI Aayog, this sector is going to grow fivefold in the coming years and
will become a 650 billion dollars by 2040. This will be essential to drive the Indian
economy as this money is used by the government to build infrastructure and provide
goods and services to the people of the nation.

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 Chapter 3- Challenges in Front of Real Estate
in India

As mentioned before, Real Estate sector enhances the Indian Economy through many ways like
being 2nd highest job creating sector in India and forming 5.5-6.5% of the Indian GDP. But
despite these benefits of this sector, it is facing some major issues due to which it is stagnating.

In this section, we are going to discuss those challenges which negatively affect the real estate
sector. This will include availability of land, funding, tax changes, increasing costs of materials
and delays in projects.

1. Lack of easily available land-

The excessive development of the metropolitan cities has made these cities a hub of industrial
and production activities. But at the same time, it has left vey less space for further carving of
land and developing house projects for the real estate sector.

This decreases the investment in the sector as reduction in lands increases the price of the land
due to which the will to invest of people reduces.

This seems to be a great challenge to the sector as the availability of land at affordable or
competitive prices is very crucial for the success of this real estate sector and in turn for the
Indian economy.

Also, providing some incentives to the house developers in these areas is also not possible
because in most of the cities in India, the developers are not able to recover their costs through
those housing projects.

To recover from this problem, the real estate sector can develop the lands at the outer portions
of the cities or villages but this will also require heavy investment either by the government or
private developers.

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Protests are also now becoming a big challenge for all the real estate developers and the sector.
Due to increased protests and movements against cutting of trees and disruption of natural
ecosystems for development of the housing structures, the real estate industry gets affected a
lot. This decreases the available land to a great extent. These protests are beneficial for the
environment but for the sector, it isn’t.

Also, if Land is available, it becomes very difficult to acquire it due to 2 main reasons- Long
legal battles and high compensation to be paid to the actual owner.

2. Delay in the development of the property projects-

This point is directly connected to all the coming points. When people buy barren land or land
which is suitable for future housing, there is not much delay in the registration of land to the
owner.

But when the private housing developers start developing the land to create flats or houses,
they need to pass through many stages of approvals by the government offices.

Due to the continuous delays in the government offices and outdated laws, the real estate sector
has been affected quite a lot. This leads to the reduction in the investment in the property
market. Further, this also increases the prices of most of the properties.

3. Impediments to Funding the projects-

For going into detail of this point, we need to understand the meaning of a term which is
Industry Status. When a company or industry is given the industry status, it comes under the
state’s or center’s industrial policy which makes it easy for the industry to access funds at
profitable or competitive rates. Government, from time to time, gives this status to large
companies so as to incentivize them for developing projects in India.

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But the main problem here is that most of the small developers who want to start the property
projects in India are not being given the Industry status due to their comparatively small
projects. This makes the developers hesitant towards starting the projects in India as there will
be shortage of funds for them which will end up in either project delay or not up to the mark
infrastructure.

5. Obsolete laws and legislations-

Legislations are very crucial for the success of any sector. Like the government has rolled over
many fruitful schemes for sectors like agriculture, manufacturing industries, automobile
industries etc. These schemes or legislations have 2 functions-

1. To incentivize foreign investors

2. To reduce costs and taxes for the developer

But in the real estate sector, the laws have not been able to improvise to the present
circumstances. For e.g., let’s talk about Floor Space Index to understand this matter. It is the
ratio of total floor area covered by the building and total area of the plot. In our small cities
where the FSI value is very low (in the range of 1-1.5), the governments are not paying any
heed to this matter.

The laws governing the real estate market in India are- Transfer of Property Act of 1882,
Easement Act of 1882, Registration and Stamp duty act of 1908 and Right to fair compensation
act of 2013.

But the government after recognizing the present facets and challenges of the real estate market
passed the Real Estate (Regulation and Development) Act in 2016 which is considered as the
most comprehensive laws in the country regarding real estate. This act officially initiated Real
Estate Regulating Authorities (RERA) which is the sole central and state authority to govern
aspects like sale and development of the real estate projects.

But 2018 onwards, the government has taken sincere efforts towards developing this sector
once again like tax reductions, decrease in interest rates and bringing cutting edge technology
into India

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6. Challenges brought in by Corona Virus-

The pandemic has hit many sectors very badly out of which Real estate is one. the pandemic
has brought many challenges to the table. But the real estate industry has also reacted well by
finding the solutions in a short span of time. The challenges include-

1. Lack of labor- Due to the pandemic and subsequent lockdown, there was a severe shortage
of labor as transportation was not possible.

Solution- The industry has adopted new technologies and machine learning to tackle the labor
shortage problem. This also has an additional benefit of time saving.

2. Prohibition on site tours- Fearing the transmission of the virus, people fear to go out and
have the site tour of the property they want to purchase.

Solution- The sales and marketing agents have worked out a solution to tackle this problem
which is virtual site tours. People can virtually visit the properties through various video
conferencing applications. This would also keep the people safe from the virus.

Also, the industry has improvised to accommodate and tackle the new emerging needs. For
e.g., the pandemic has brought in the taboo concept of Work from home. Now, the office people
would want a separate working space in the houses. The industry, after looking at this need,
has started the projects with houses which have an additional workspace.

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 Chapter 4- Future Opportunities for Real
Estate in India

The real estate sector is expected to grow rapidly after this pandemic in 2021. It has shown the
effects in 2020. For e.g., the increase in the sales of properties in 3rd Quarter of 2020 was 85%
as compared to the 2nd Quarter.

The expected number of jobs provided by real estate in India by 2022 is 15 million. Also, the
various schemes and relaxations announced by the government in recent times will also assist
the sector in removing its stagnating stain.

In this section, we will be discussing about the various future opportunities available for the
real estate especially focusing on the schemes and relaxations provided by the government.

1. Housing schemes announced by government-

In the recent times, the government of India has announced many affordable housing
schemes which have benefitted the real estate sector in the previous years as well.
These schemes have an indirect impact on the real estate sector.

They do not incentivize the developers to initiate new projects but they help the
developers in selling out their unsold inventory at good services.

They get decent prices for the properties due to the fact that the subsidized amount is
being paid by the government.
For e.g. the government announced the PM Awas Yojana in 2015. After that, more
than 2 crore houses have been sanctioned for both urban and rural areas and nearly 50%
of these sanctioned houses have been constructed. This has benefitted the realty sector
a lot.

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 2. Budget 2020-

The government had, in Budget 2019, announced that the property buyers will get a tax
benefit worth Rs. 1.5 lakhs on the purchase. In budget 2020, it increased the benefit for
one more year.
The central idea behind government’s plan for real estate is affordable housing. This
will uplift the demand of the masses. It also signals a big opportunity for the developers
as they have the required incentives to start the new projects in the coming years.
However, the budget 2020 failed to completely fulfil the demands of the investors and
developers.

3. Covid-19 unlock package- After nearly 3 months of lockdown, the government

decided to remove it and announced a huge Rs. 2 lakh crore package to revive the
economy. The National Housing Bank (NHB) was allotted Rs. 15,000 crores. This
amount will help in the upliftment of the real estate sector and will also assist the small
private developers in growing their businesses.

4. Other Opportunities- It includes the other benefits given by the government for both
kind of developers, small and big. They can be divided in the following points-

• Increase in liquidity by lowering interest rates

• Easement in getting Loans for funding for the Small private developers
• Making of development zones near big metro cities to incentivize foreign
developers and investors
• Planning to build 100 smart cities by 2023 and announcement to build 11 crore
houses by 2022

These schemes and relaxations are regularly provided by the respective governments. These
are the opportunities which need to be grabbed by private investors in the long term as after
some years, the Realty sector is going to grow rapidly.

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 Conclusion

After discussing and analyzing the real estate sector, its contribution to Indian economy,
opportunities and challenges, we can surely conclude that Indian real estate market is like a
gold mine which hasn’t been utilized properly till now. The Indian market of investors is huge
and if the prices are regulated properly and incentives given to developers b government, the
real estate sector has the capacity to contribute 12-14% of the Indian GDP.

There are some shortcomings in the present Indian real estate sector which need to be rectified.
For e.g., the land scarcity problem- it can be resolved by developing infrastructure in the rural
and niche areas which have the potential to lure investors.

Also, at the same time, this sector has many golden opportunities which, if utilized, can make
it one of the most profitable sectors in our country.

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 References

• Standard, B. (2020). Budget 2020 wishlist: Here are the key challenges for real estate
sector. Business-standard.com. Retrieved 25 December 2020, from
https://www.business-standard.com/budget/article/budget-2020-wishlist-here-are-the-
key-challenges-for-real-estate-sector-120012201737_1.html.

• Sethi, A. (2020). Will Coronavirus Lockdown Impact Real Estate In Long-Term?.

Housing News. Retrieved 25 December 2020, from
https://housing.com/news/coronavirus-impact-will-delays-and-defaults-be-the-new-
normal-in-indian-real-estate/.

• in&nbsp2021, H. (2020). How real estate in India may perform in 2021. The Financial
Express. Retrieved 25 December 2020, from
https://www.financialexpress.com/money/how-real-estate-in-india-may-perform-in-
2021/2155178/.

• Raheja, T. Retrieved 25 December 2020, from https://www.99acres.com/articles/real-

estate-essential-to-drive-indian-economy.html.

• Singh, B. (2015). The Role of Real Estate Growth in Indian Economy.

Indrealestates.com. Retrieved 25 December 2020, from
https://www.indrealestates.com/post/the-role-of-real-estate-growth-in-indian-
economy/.

• Indian Real Estate Industry: Overview, Market Size, Growth, Investments...IBEF.

Ibef.org. Retrieved 27 December 2020, from https://www.ibef.org/industry/real-estate-
india.aspx.

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