USD 1 Trillion needed in the next five years to meet India’s infrastructure & housing demand: PwC-NAREDCO-APREA Report

Mumbai: India will require investment of USD 1 trillion over a period of next 5-7 years to meet the Infrastructure and housing demand. While approximately 70-80% of the demand will be from housing, the balance will be from Smart City projects, Infra-linked real estate projects like airports, railways and urban transport and the development of industrial corridors.

According to the PwC-NAREDCO-APREA report -- ‘Building the Economy Block by Block’, banks, private equity, NBFCs (Non-Banking Financial Corporations) and REITs (Real Estate Investment Trusts) are expected to be the major sources for financing infrastructure projects in the country.

Constant percentage of banks’ commercial real estate credit to total credit over the years is an indicator of the lack of intent on the part of banking institutions to increase their exposure in the real estate sector development hence making it necessary for developers to explore other sources for financing. According to the report, private equity as a source of funding has gained increasing success in the real estate sector over the years. With greater transparency owing to government policies and initiatives transforming the sector to a dynamic and organised market, has boosted the investor confidence leading to such results.

There has been significant increase in lending from NBFCs to the real estate sector in last few years. There are number of domestic and foreign owned NBFCs specialising in lending to the real estate sector and currently their investment is more than INR 1.1 trillion in this sector.

After considerable modifications, REIT regulations were finally enacted in India in September 2014. The capital-intensive nature of the infrastructure sector and the limited options available to real estate developers and owners for raising funds, REITs will also offer a way forward.

Abhishek Goenka, Partner – Tax, PwC India, said, “The Real Estate (Regulation and Development) Act, 2016 along with the PPP initiatives such as the Hybrid Annuity Model that are better suiting the risk appetite for long term investors are proving vital to the sector’s revival.

With the modification of the FDI norms, an increased number of foreign players are expected to enter the market potentially bringing in new technical capabilities. REITs and Infrastructure Investment Trusts (InvITs) are investment vehicles that can be used to attract private investment in the infrastructure and real estate sectors, and also relieve the burden on formal banking institutions.”

The report also discusses the emerging themes in the real estate market that will change the way investors perceive the sector.

  1. Affordable Housing: The Government in its Union Budget 2015 has committed to provide 6o million houses. It has also committed to invest about USD 61 billion by 2019 to make affordable houses available.  However, total estimated investment requirement would be about USD 1 trillion, 70%-80% of which would be in the affordable segment over next 5 to 7 years. To meet these funding needs, government is also proactively working on attracting private sector investment in the development of the housing sector.
  2. Smart cities: Securing capital from domestic private investors and foreigners remains one of the biggest hurdle to smart city mission. A Special Purpose Vehicle (SPV) is proposed to be formed for the implementation of the smart city proposal. However, current guidelines don’t enable or provide adequate safeguards for private sector participation at SPV or Sub-SPV level.
  3. Infrastructure-linked Real Estate: Railways and metro rail transit systems in India are exploring land value capture as one of the key source of infrastructure financing. Land monetization by Metro Rail Operators or Authorities, Railways and Bus Transporters is estimated to be worth over USD 30 billion investment opportunity over the next 5-10 years. The Government will need to work out investor friendly commercial structures while ensuring transparency and accountability in the transaction process.
  4. Industrial Corridors: The Government is planning major industrial corridors across the country such as Delhi-Mumbai Industrial Corridor (DMIC), Vizag-Chennai Industrial Corridor (VCIC) and Chennai-Bangalore Industrial Corridor (CBIC). In 4 nodes in VCIC itself, total investments are estimated to be about USD 2 billion over the next 5 years or USD 14 billion over 30 years for creation of infrastructure to cater to industrial and supporting existing as well as incremental population. Industrial corridors such as DMIC, CBIC and VCIC, alone shall need investment of over USD 100 billion towards holistic development of industrial nodes, transport and logistics infrastructure.

The two most important pillars of Indian economy are very delicately poised. Real Estate as emerged stronger and more matured from the economic downturn, while Infrastructure is slowly getting back on its feet.  Both sectors will require the right focus from all market participants to ensure that the potential is fully explored. The funding gap will continue to be a primary challenge and new avenues of funding like credit enhancement schemes for key projects and development of strong bond markets would be important steps for generating alternate capital.

Ends

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About APREA:

APREA is a non-profit body that represents the real estate investment industry in the Asia-Pacific.

APREA and its partners help foster a more informed marketplace and encourage greater professionalism by championing best practice.

APREA also provides its views to governments in order to help forge a more globally competitive real estate industry. APREA has chapters in eight regions – China, Japan, India, Australia, Hong Kong, Singapore, the Philippines and Malaysia.

For more information on APREA, please contact:
Peter Verwer
APREA CEO
Asia Pacific Real Estate Association Limited
peter.verwer@aprea.asia

About NAREDCO

National Real Estate Development Council (NAREDCO), under the aegis of Ministry of Housing and Urban Poverty Alleviation, Govt. of India is an apex body representing all spheres of stakeholders engaged in various aspects of real estate development. NAREDCO aims to improve the confidence level of lenders, investors and consumers by bringing in professional and ethical practices.  NAREDCO has a Governing Council, responsible for policy formulation and general administration and an Advisory Council of heavy weights for policy advocacy.