2023: India's Real Estate Renaissance Fueled By Innovation, Luxury, Unicorn Surges
In the year 2023, India's real estate industry experienced an unparalleled upswing, defined by dynamic patterns and changing preferences that moulded a diverse landscape marked by innovation and a strong emphasis on sustainable, inclusive development. The forefront of this surge was led by the luxury and ultra-luxury segments, driven by increasing investor enthusiasm, expanding wealth, resilient capital markets, and the noteworthy rise of more than 115 start-ups achieving Unicorn status.
Tier one cities demonstrated resilience, experiencing noticeable increases in rental prices and heightened office space consumption. In stark contrast, tier two cities witnessed significant workforce migrations, fueled by a lower cost of living, improved work-life balance, and affordable housing options. This prompted increased attention from developers and state governments, leading to the emergence of structured real estate markets in smaller cities.
Resurgence Of Tier Two Cities
The intersection of technological innovation and architectural brilliance played a pivotal role in reshaping the sector. The integration of Artificial Intelligence, the Internet of Things, and Virtual Reality redefined home-buying experiences, ushering in a new era for the industry. Furthermore, a noteworthy shift in focus towards Tier II and Tier III cities was observed, indicating a departure from the traditional metro-centric approach.
Boman Irani, President, CREDAI said that in 2023, while Tier I cities drive growth for investors, increased government initiatives such as Smart Cities, the rise of Satellite cities, and ongoing urbanisation have fueled growing investor interest in Tier II and III regions. "These areas are striving to establish themselves as distinctive economic hubs. Looking ahead to 2024, we anticipate a more pronounced growth trajectory in both housing demand and supply for Tier II and III cities, as they take the forefront in driving economic development and complementing the role of Tier I cities," said Irani.
Nagaraju Routhu, CEO of Experion Developers commented that while major metropolitan cities have traditionally dominated the real estate spotlight, 2023 witnessed a resurgence of interest in Tier-II and Tier-III cities. “The ongoing advancements in infrastructure, coupled with the rise of remote work culture, encouraged individuals to explore real estate opportunities beyond the metros. Investors and home buyers alike turned their attention to emerging cities, drawn by affordability, improved quality of life, and untapped growth potential.”
Praveer Shrivastava, Sr. VP, Residential, Prestige Group too commented on the trend. He said, “Tier 1 and Tier 2 cities are rapidly emerging and becoming real estate growth engines. As these cities continue to attract investors, the real estate industry will grow, paving the way for equitable and sustainable urban development. Certain factors, such as the availability of young educated professionals, continue to attract investors to these areas, encouraging firms to expand their operations in tier 1 and tier 2 cities, resulting in increasing demand for real estate."
He added, "Urbanisation is a global phenomenon, and these cities are seeing a surge of people seeking better opportunities and higher living standards. Also, with companies relocating or creating operations in these cities, the infrastructure has developed which had a positive impact.”
Better Than Expectations
According to Amit Goyal, Chair of Housing and Urban Development Committee PHD Chamber of Commerce and Industry, “Our luxury Outlook survey 2023 threw up a strong intention amongst savvy investors for real estate, and the year is closing even better than everyone's expectations! Sales of housing units across segments will close at an all time high. The winner of 2023 has undoubtedly been the luxury and ultra luxury segment, thanks to the growing wealth, capital markets and over 115 start ups becoming Unicorns.”
Anil RG, Managing Director, Concorde said that both Tier I and Tier II markets exhibit positive and upward trends. With employment opportunities spanning various sectors, there is significant migration across different classes. “In tier 1 cities, a noticeable increase in rental prices and office space consumption is evident. In tier 2 cities in India, there has been a substantial workforce shift. In these cities, the cost of living is lower, work-life balance is improved, and housing remains affordable. This trend has motivated Indian developers and state governments to concentrate more on these high-potential yet neglected tier 2 cities. Structured real estate markets are beginning to emerge in smaller cities, where property values are on the rise, although still notably below those of the top 10 cities.”
Rapid Growth With Balanced Development, Growing Outlook
Murali Malayappan, CMD, Shriram Properties said, “India is expected to grow rapidly over the next five years, with GDP growth expected to outpace the prior year. India's stature is also growing along with a politically stable atmosphere. With the real estate sector playing a critical role in the growth of the economy, this special combination will pave the way for the growth of the sector in Tier II cities. The government and other stakeholders should ensure balanced development, and encourage the growth of Tier II cities and towns alongside urban centres, for the comprehensive and inclusive advancement of the entire country.”
Bhadresh Shah, Managing Director of Today Global Developers, stated, “The real estate scenario 2023 presented a growing outlook for Tier 1 and Tier 2 cities. Tier 1 cities, fortified with established infrastructure, remained stalwarts in a robust market. In contrast, Tier 2 cities were the rising stars, swiftly growing into attractive investment hubs. Their appeal lies in affordability, offering promising prospects for homebuyers and investors in residential and commercial sectors.”
Shah added that Tier 1 cities will maintain their market strength with ongoing development projects enhancing their allure. “Simultaneously, Tier 2 cities anticipate sustained economic growth, infrastructure development, and heightened real estate demand. Government initiatives, improved connectivity, and decentralised industries will contribute to their ascent, solidifying their status as sought-after destinations in the evolving real estate narrative."
Growth Of Luxury Sector and Use Of Technology
Manan P. Shah, Managing Director - MICL Group said, “In the real estate landscape spanning Tier 1 cities, MICL proudly leads the way in crafting supreme luxury homes tailored to the discerning tastes of our esteemed clientele in Mumbai. We saw such exquisite residences gain momentum in 2023. We expect this to remain so as a discerning and affluent clientele continues to seek exclusivity, unique features, cutting-edge security, 360-degree deluxe amenities, prime location, and a transformative improvement to their overall lifestyle.”
Shah added that In the ever-evolving realm of digital transformation, 2023 witnessed the convergence of avant-garde technologies such as Artificial Intelligence (AI), Internet of Things (IoT), and Virtual Reality (VR). This integration of tech has redefined home buying, offering personalised recommendations and immersive virtual tours. This streamlines the process accelerating decision-making, swiftly converting interest into ownership. As we look ahead to 2024, these digital innovations are poised to revolutionise buying trends further, propelling the real estate sector into a new era of supreme luxury homes."
Priyatham Kumar, Founder of Homes247 says “As we near the end of 2023, the real estate scenario in India is witnessing a notable shift from the usual focus on metro cities. According to a study by JLL India, of the 3294 acres of land acquired by developers between January and October this year, 44.4 per cent of the transactions happened in Tier-II and Tier-III cities. Cities like Nagpur, Palghar, Khalapur, Panipat, Ludhiana, and Panchkula collectively contributed 75% to the 1461 acres acquired in these regions. This shows the changing trend in the Indian landscape.”
The Digital Renaissance
Bhavik Bhandari, CSMO, Ashwin Sheth Group said, “In 2023, the real estate sector witnessed a huge surge in demand for ultra-luxury residences across Tier 1 cities, prompting the industry to swiftly capitalise on this trend by constructing opulent properties featuring top-notch facilities. In the current digital age, the term 'Smart Homes' has transformed into 'connected homes,' signifying the profound impact of IT devices and automation systems on the real estate market. This year, we have observed a paradigm shift driven by the proliferation of technology and AI. There is a huge demand for NRI investment in India, as per a recent survey, NRIs are expected to contribute to 20 per cent of the Indian real estate market. We are extremely positive for the next year and Mumbai is anticipated to witness a 5.5% upsurge in prime residential prices in 2024 as per the industry experts. The future holds immense promise for the real estate sector, especially for those with diversified portfolios and the agility to enhance value and seize opportunities. This evolution underscores the necessity for developers to embrace innovation, elevate living standards, and actively contribute to the creation of sustainable, high-quality living spaces that redefine modern luxury living in India.”
Sustainable Living, Innovative Workspaces, and Emerging Markets
Mazhar Syed, Director, AsmitA India Realty said that Sustainability continues to take centre stage as eco-conscious preferences steer developers toward LEED certifications and eco-friendly features. Co-living solutions respond to the demand for affordable urban housing, while smart homes redefine modern living experiences.
In commercial real estate, the SCO sector thrives, notably in Gurugram, redefining workspaces through innovative architecture and biophilic design.Tier II and III cities will emerge as compelling markets, bolstered by government initiatives fostering residential growth.
Manju Yagnik, Vice Chairperson of Nahar Group and Senior VP, NAREDCO, Maharashtra, said, "The affordability of house loans has been adversely affected by inflationary pressure, unaffordability, and a lack of new development, all of which have contributed to historically high-interest rates. As a result, demand for affordable housing, a substantial portion of the housing structure, has decreased. To encourage small urban housing, the Indian government has granted an additional interest subsidy of Rs 60,000 crore for residences up to Rs 40 lakh. Furthermore, with the festive tailwind, demand for house loans is anticipated to continue to be strong, indicating a robust increase in property sales."
Taxing Times and Workspace Evolution
Punit Shah, Partner, Dhruva Advisors said, “From a direct tax perspective, manner of classification of rental income (house property income vs business income) and consequent tax implications has been a vexed industry issue. In the event the lease rentals are classified as business income, related expenditure incurred thereon is allowable as a deduction for computation of taxable income. However, in the event the lease rentals are classified as income from house property, a flat deduction of 30 per cent of the rental income and corresponding interest expenditure is allowable as a deduction. While guidance is available with respect to the classification of income basis various judicial precedents, litigation on the issue prevails since the analysis is very fact specific and needs to be tested on a case to case basis. Hopefully, the principles should attain more certainty in the coming years thereby reducing the litigation and also providing clarity to the industry players.”
Abi Roni Mattom , Country Director, Unispace India commented, "When we look at the current trends as people are coming back to work, the office isn’t competing with working from home, it’s competing with the benefits of working from home. A significant proportion of employers continue to perceive in-person presence as crucial for career progression, it could inadvertently disadvantage those who thrive in remote or hybrid work settings. For both the young workforce who moved to tier two cities during the pandemic, and people who continued to be in tier one cities, we see one thing in common - workspace is not just hybrid, it is beyond - it is work from office, work from home, and anything in between like connected to work while commute."
Overall, 2023 marked a pivotal year for India's real estate sector, setting the stage for a future characterised by innovation, sustainability, and inclusive growth. The amalgamation of technological advancements and shifting preferences positions the industry on the brink of a transformative era.
