Real estate is a key growth driver for any economy, and the growth of the office asset class has been fuelled by India’s consistent economic expansion. It is estimated that by 2030, India is poised to emerge as the world’s third-largest real estate market with a total value of USD 1 trillion, accounting for roughly 18-20% of the country’s GDP according to a joint report prepared by NAREDCO and EY. Commercial real estate in particular has witnessed robust growth in recent years, fuelled by rapid urbanization, infrastructure development, a thriving economy, and population growth. Beyond these factors, the role of policy interventions in creating a conducive environment for the sector’s growth can scarcely be understated. Let us turn our attention to a few of the key policies that have catalysed commercial real estate.
Real Estate Regulation and Development Act (RERA)
RERA has been among the most significant regulatory changes affecting the real estate sector in the past decade. The Act was introduced in 2016 to bring greater efficiency, transparency, and accountability to the sector. It mandates registration of real estate projects and agents, disclosure of project details, establishment of escrow accounts, and adherence to project timelines and quality standards. Reducing the risk of fraud, irregularities, and project delays, RERA’s implementation has markedly elevated consumer confidence, attracting increased investment to the sector.
Goods and Services Tax (GST)
Since its introduction in 2017, the implementation of GST has significantly simplified the tax framework for the real estate industry by incorporating several indirect taxes. Developers now enjoy a more streamlined tax procedure and fewer taxes to deal with, while property buyers experience enhanced transparency and smoother real estate transactions. Additionally, the decrease in tax evasion resulting from GST has a beneficial impact on the overall economy.
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Foreign Direct Investment (FDI)
The relaxation of FDI norms has paved the way for increased foreign investment in the Indian real estate sector. In addition to the welcome infusion of capital, this FDI liberalization has also served to bring international best practices and technological innovation to the sector, significantly boosting overall growth. Real estate in India reportedly saw a surge in FDI between 2017 and 2022, totalling USD 26.6 billion – a testament to the immense value that this policy measure has created for the industry. Cities such as Mumbai, Delhi, and Bangalore are expected to attract foreign inflows.
Real Estate Investment Trust (REIT)
Established in 2014, Real Estate Investment Trusts (REITs) are entities that manage, operate, or fund revenue-generating real estate assets by pooling capital from investors for investment in commercial real estate ventures. Consequently, REITs empower individual investors to participate indirectly in commercial real estate, receiving rental income in the form of dividends and interest, much like the stock market. This process democratizes entry into the sector and enhances liquidity.
Environmental Regulations
In line with the increased focus on sustainability in the real estate sector, in India and across the globe, several environmental regulations and measures were introduced in recent years to promote sustainable and eco-friendly building practices. Green building certifications such as Leadership in Energy and Environmental Design (LEED) and Green Rating for Integrated Habitat Assessment (GRIHA) are increasingly sought after by commercial real estate projects. This push towards sustainability elevates the profile of the sector among ESG-conscious investors, enhancing its ability to attract domestic and foreign investment.
CSMO
Ashwin Sheth Group
Commercial real estate in India is in the midst of a revolutionary phase, with the aforementioned policy reforms along with Make in India and Smart Cities Mission initiatives playing a significant role in unlocking the immense potential that the industry holds. A well-regulated real estate sector streamlines processes and safeguards the interests of all stakeholders, boosting investor confidence and driving long-term sustainable growth.