Revival of Indian Real Estate: Financial Opportunity or Speculative Risk?
The Indian real estate sector is staging a striking comeback with housing sales in India touching a 10-year high at more than 4.7 lakh units in ’24. In addition, the record institutional inflows heading toward Real Estate Investment Trusts (REITs) have also infused a new life into the real estate market. However, before we start celebrating this growth, let’s look beneath the surface and take stock of the critical dilemma. Is the market, once bogged down by regulatory hurdles like RERA, lack of funding, and the Coronavirus pandemic, actually developing into a genuine financial opportunity or are these early signs of another bubble about to burst?
The revival of real estate sector is bolstered by three main factors – demand for affordable housing, REITs, and a renewed push for infrastructure development. With the government keen to promote housing for all, these developments are further underpinned. However, the skepticism around this momentum remains hanging over the market like a dark cloud. Let’s find out what these different factors mean, one by one -
India’s Real Estate Sector Growth: Hit or Miss
If there is one factor that has the most significant impact on the real estate market, it is the vibrant segment of affordable housing. With the Government of India’s Pradhan Mantri Awas Yojana (PMAY) and other credit-linked subsidies, lower GST rates, tax benefits, and reduced interest rates for low-income groups, the demand for affordable housing has only grown in the recent years. There are, however, other factors that could further boost this segment like – stable end-user demand instead of speculative buying; new financing models created through Public-Private Partnerships; and job creation through construction and allied industries. The flip side, however, is the lingering fear that due to regulatory delays, hurdles in land acquisition, and cost overruns as well as financial mismanagement on part of the builders, the supply could, once again, fall short even if demand stays the same. The hick ups in urban planning in India and lack of basic civic infrastructure could also play truant in sustaining the growth of India’s real estate game!
REITs : Game-Changer In Commercial Real Estate
By May 2025, the Real Estate Investment Trusts (REITs) in India had recorded a robust growth, reflecting the confidence expressed in the nation’s commercial real estate sector. Some of the factors that drive this growth are:
a) Heightened leasing activity bolsters occupancy rates and rental incomes
b) Regulatory support in the form of the SEBI’s mandate that 90% of taxable income of REITs be distributed to unitholders. This translates into consistent returns.
c) Attracting investors through friendly taxation policy like reduction of holding period for long-term capital gains on REITs from 36 months to 12 months.
Since India listed its first REIT in 2019, the commercial real estate market has seen increased investments from retail as well as institutional segments. REITs are a good opportunity if you are looking liquidity and transparency in a traditionally opaque market. These also offer steady rental income, especially if you play with Grade A commercial spaces in tech hubs like Bengaluru and Hyderabad. But don’t ignore the risks, ranging from work-from-home trend, rising interest rates, market congestion!
Investment via Infra Funding
Massive infrastructure investment is perhaps the most significant factor that drives the real estate market. With expansions happening everywhere from metro rail to expressways, integrating infrastructure with real estate could boost organized urbanization. This could even attract Foreign Direct Investment into construction sector as well as its allied areas. Real estate revival is also looking at massive infrastructure investment coming through government schemes like the National Infrastructure Pipeline (NIP) and PM Gati Shakti. The most positive outcome of this could be improved connectivity to peripheral regions, including tier-2 cities. What we need to look out for, however, is the financial sustainability of these projects run with massive funding. Right now, the market is running ahead of fundamentals, as is evident in the gap between prices and end-user affordability, across major metros and Tier-II cities. Also, the state governments are often over-leveraged. So, if the financing halts, the ripple effect could impact both infrastructure and the associated real estate investments.
All said and done, nobody can deny that the Indian real estate is making a spirited comeback. However, there is a dire need to turn this speculative asset sector riddled with black money transactions to a better regulated, transparent, and professional sector. The interface between REITs, affordable housing, and infrastructure investment has the power to transform the real estate sector into a more inclusive pillar of Indian economy. The policymakers, financiers, and developers need to rise to the occasion and ensure that better sense prevails.
(The writer is a seasoned Banker and Mortgage Specialist working for India’s largest loan distributor company and occasional political commentator.)
