India's housing sector has always been a favorite amongst domestic investors. As an asset, housing has enjoyed high capital growth backed by high demand in major Indian cities.
Besides, easy leverage and recurring rental income further piqued investor interest in the housing sector. However, post the 2014 market slowdown, real estate, which once attracted investment by volumes as high as 40 per cent, saw a gradual dwindling in investor interest.
But, by the end of 2017, the markets started to recover, instilling end-user confidence and stabilisation of property prices in most markets. The bounce-back was eventually followed by expansion in investor activity. As per our recent quarterly consumer sentiment survey, investment activities in five major Indian cities (Mumbai, Gurugram, Noida, Pune and Bengaluru) currently account for around 24 per cent of the market. This is a notable improvement from the previous quarter's 17 per cent.
The spurt can be attributed to three factors -- anticipated property price growth in major Indian cities, high buyer confidence and availability of light-weight investments.
After a prolonged period of price compression, housing markets have started to stabilise in most of the major markets. Going forward, notable growth in housing prices is expected, backed by an upbeat macro-economy and growth in the job market. In fact, early signs of an upward thrust are already visible in some of the popular micro-markets. As prices start going up, this is one of the most conducive times to make an investment.
At the onset of the current FY, reforms such as RERA and GST have finally started to come out of policy contours and play a prominent role in the market. When these policy makeovers were proposed, there was visible distress in the market due to possible uncertainties. However, as the dust settled, the market looked much more mature. Once known for being highly unstructured and unorganised, Indian realty finally seems to be taking emboldened steps towards becoming an organised industry.
A higher degree of order and structure becomes a natural pull for the investor class. As policies such as RERA stipulate transparency in every deal closure, both end-users and investors are gaining confidence.
Numerous light-weight investments such as 1 BHK, studios and micro-homes are gaining a foothold in the Indian housing landscape. Such small units are slowly growing in popularity in many Indian metros, backed by high demand from young, working millennials. In the foreseeable future, the demand for such units will move further up the curve, due to the young demographic dividend in Indian metros.
These units are not just popular amongst the end users, but even investors are gravitating towards them in sizeable numbers. Besides being in high demand, such units offer a lower barrier to entry. Coupled with attractive payment plans, it augurs well for capital investment. As risk appetites are still low and there is a growing propensity towards risk-adjusted returns, small residential units are the perfect sweet spot.
Going forward, investors will continue to expand their foothold in the Indian housing market. On the face of high demand and better organisation, Indian real estate will continue to be an inviting field for investors and end users. However, the market is expected to be largely speculation free and only serious long-term investors will play out in the current scenario.