How Millennial India Is Underpinning The Indian Real Estate Story
India is changing for the good and so is the Indian Real Estate getting more transparent and investor friendly. Well-known fact is that India is the second largest by population (1.37 billion) in the world next to China and that makes it a huge consumption market.
Shobhit Agarwal, MD & CEO, ANAROCK Capital Advisors
India is changing for the good and so is the Indian Real Estate getting more transparent and investor friendly. Well-known fact is that India is the second largest by population (1.37 billion) in the world next to China and that makes it a huge consumption market. However, what makes it the first-choice market is the fact that the median age of Indian population is just 28 years; 10 years younger to China. This makes it an all-round bouquet of vast dynamic consumer market. This new generation of consumers inherit values from the old generation but also have their unique life ethics and demands. Unlike the India a decade ago, this “Millennial India” is willing to spend more than earlier; is more adventurous; loves to spend on leisure & travel and is demanding. To cater to this newer India’s demands, the real estate sector is gearing up with asset light offerings like Co-living and Co-working, allowing users to be more flexible and mobile without infusing high capital in real estate. Demand for such offerings is high and that shows from the fact that the number of operators in this space have increased from less than 15 in 2015 to more than 350 now, including various international operators.
The new India is becoming more entrepreneurial. As per KPMG report, the number of start-ups witnessed a massive growth, from 7,000 in 2008 to 50,000 in 2018. A big boost to this new India is the government support and regulations. Over the past six years, government has introduced various start-up focused initiatives and have special wings to support interesting ventures.
The Indian Government has also marked a significant improvement in ease of doing business and created a more transparent atmosphere within the complex real estate sector. Introduction of the Real Estate (Regulation and Development) Act (RERA), GST and other regulations have brought focus and importance back to the end-users and their requirements. While it did and may continue to slow the pace of growth of real estate business in the country in the near term, the results will show in the long run. The increased transparency has already started attracting PE funds from across the globe and should further drive foreign capital into the Indian real estate.
Another significant change in the Indian real estate is the shift from physical assets to financial assets. Investors who could or could not invest in the physical real estate due to its high-ticket size have welcomed the introduction of REITs.
Within first six months of the launch of 1st REIT in India, its market capitalisation has increased by 37% showcasing higher focus on such options.
To cater to the well-educated urban occupants’ demands, the focus on green and enivornment-friendly buildings is growing fast. With over 5,500 projects (7 billion sq ft) registered with Indian Green Building Council (IGBC), India has become the second largest in terms of number of green technology projects and built-up area, next to the USA. With high focus on energy efficiency, the area under the preview of IGBC is expected to touch 10 billion sq ft by 2022 and there is high demand for such properties.
Residential developers – who were unwilling to change their strategies, have also recognised the importance of the newer customer base in addition to the wave of migration from rural to urban India. Realising the importance of lower ticket sizes, across top 7 cities, developers have reduced the home sizes by an average of 20% between 2013 and 2019. While this should have resulted in the quicker sales, on the contrary, the sales have reduced by a whopping 47%. This is on the back of stalled and delayed projects across the years that has dampened customer confidence. The delays were a combined effect of some wrong cashflow decisions coupled with the lack of adequate funding due to Non-Banking Financial Company.
(NBFC) crisis since September 2018. At ANAROCK, we believe the situation will continue for some time as the NBFCs will take time to come back to normalcy. This means the cost of money will continue to stay higher and the need of Special Situation Funds (SSFs) is higher than ever before. The SSFs can provide the last mile funding to developers and help them complete the project which can ease off their cash flow situation. While the government has also announced a similar USD 3.5 billion funding to complete the semi-finished projects, implementation of such schemes will remain the key.
All this will lead investors / end-users to focus on the USD 7.3 billion opportunity / 47,000 unsold completed residential units with occupation certificate (OC). We believe these will be the first ones to be taken up as soon as the tide turns. The current situation is tough and will require measured approaches from both, the government and developers. But the opportunity set is huge and the funds evaluating to enter in India need to act fast.
In a nutshell, this millenial India is here to grow and it won’t accept a sluggish growth.
It knows what it wants and why it wants. It will ignore you if you want to push what it doesn’t want but if provided the comfort it needs, it is ready to transfer an extra buck into your account (no hard cash please!).
About the author
MD & CEO
ANAROCK Capital Advisors
Mr. Shobhit Agarwal, MD & CEO of ANAROCK Capital Advisors, is a visionary entrepreneur with professional excellence and experience of over 20 years in real estate investments. In his past role, Shobhit led the Capital Market division of JLL India with aplomb. Having handled many marquee transactions, Shobhit has been instrumental in leveraging Indian real estate to the global capital market platform.
During his 17 years stint at JLL, he created a robust platform focussing on client delivery and positioned JLL as India’s market leader in Capital Markets. With equal intensity and expertise, Shobhit also oversaw JLL’s hospitality business and helped various large hospitality chains with Asset Monetisation and Fund Raising. His in-depth knowledge about the sector and deep-rooted relationship with developers and capital providers have resulted into multi-billion dollar deals.
At ANAROCK Capital, Shobhit will steer the strategic direction through the various investment verticals to ensure that ANAROCK’s core philosophy of technology enabled investor-centric decision-making continues to serve the best interest of it’s clients.
– Diploma in Financial Management, NMIMS Mumbai (2003 – 2004) – Masters in Planning (Urban Planning), SPA New Delhi (1998 – 2000) – Bachelor of Engineering (Construction), CEPT Ahmedabad (1993 – 1998)
– Member, Institute of Town Planners India (ITPI) Regis. No. 2002/40 – Member, National Committee on Construction Finance set up by CREDAI – Member, The Royal Institution of Chartered Surveyors (MRICS)