Today we will discuss what will be the future of Indian Real Estate? Also the factors that will drive real estate growth and what impact India's population will have on the growth of realty sector.
In India, the general belief is that property is a safe investment, that property prices will always rise, making it a good return investment. If we look at the history of the past 70 years, this has been the case. But will it be the same in the future? Will Indian real estate continue to perform like this, or will our situation become like China and Japan?
Property is a long-term investment, and people invest in property thinking about 10, 15, or 20 years ahead. That's why today we are going to discuss what could happen in Indian real estate in the next 25 years. How Indian real estate might perform until 2050?
According to a report by Credit and Kushman & Wakefield, the current market size of real estate in India is estimated to be around $3.1 trillion, which is around ₹240 lakh crore. Of this, 80% is residential real estate and 20% is commercial.
Real estate contributes to India's GDP by direct contribution is around 7%. It is expected that by 2030, real estate contribution will be around 15% to GDP, and by 2070, it would be around 17.7%. By 2030, the market size of real estate could reach up to $5 trillion, and by 2070, it could be up to $17.7 trillion. Currently, 36% of people in India live in urban areas, and by 2050, almost 50% will reside in urban areas, meaning metro cities will also grow.
Currently, there are eight metro cities in India, and it is expected that by 2050, 10 more new metro cities will be created. If we look at demand today, there is a shortfall of 18 million homes, and by 2030, there will be a need for 70 million new homes. These numbers sound very promising to hear, but what is the logic behind them? Why are credit and research firms saying that the next 25 years will be very good for Indian real estate?
True growth in Indian real estate has only happened in the last 34 years. From independence until 1990, there was gradual growth, and there was no major boom where property prices were doubling every 3 to 4 years. But between 1990 and 2024, we have seen four booms and periods of three slowdowns. We have already written an article on the history of Indian real estate, which will help you understand India's real estate story.
In the last 34 years, there were four major reasons for growth. Firstly, population growth; secondly, an increase in people's income and their paying capacity; thirdly, urbanization increased, leading to fast-paced development of metro cities and tier two and tier three cities. Fourthly, there was an increased use of technology in real estate, which improved construction quality and speed. This increased developers' reach, and at the same time, circulation of information among home buyers increased.
Essentially, as population increased, demand increased; with increased demand, prices increased with increased income, people started buying property not just for end-use but also for investment purposes, leading to further demand and increased future prices.
However, the biggest problem with this entire growth was urbanization. In 1961, only 18% of people in India lived in urban areas, which increased to 28% in 2001, 32% in 2011, and by 2021, it reached 36%. Due to this rapid urbanization, demand for property increased significantly in metro cities, leading to very expensive properties.
Tier two and tier three cities also experienced increased demand, leading to rising prices there as well. Now, if we talk about the future, the same factors will drive real estate growth. It is expected that by 2030, India will be a $7 trillion economy, and by 2050, it is projected to become a $30 trillion economy. Obviously, when the economy grows, people's income will increase.
With increased income, there will be greater demand for real estate. The real estate age sector will also grow. However, among all these factors, there is one factor whose impact on Indian real estate will be the biggest, and that is the population of our country.
Let's see how India's changing population will impact Indian real estate. In 1950, India's population was 350 million. By 1990, it had increased to 870 million, and by 2020, it was almost 1.4 billion. Currently, in 2024, it is estimated to be at 1.44 billion.
Between 1950 and 1990, the population almost tripled, but still, there was no major boom in the property market. During this time period, property prices were gradually increasing. The reason for this is that in 1950, 59% of the population was in the age group of 15 to 64 years, meaning people were earning and 38% of the population was below 14 years, and the remaining 3% of the population was above 65 years.
Essentially, 59% of the population was earning money, and the rest 41% were dependent on them for sustenance. Until 1990, there was no major change in this situation. In 1990, 58% of the population was between 15 to 64 years, 38% of the population was below 14 years, and 4% of the population was above 65 years. This means that earners were fewer, expenses were higher, and savings were minimal.
Whenever there has been a boom in real estate, it has largely been due to major investors rather than users. Therefore, until 1990, there was no major boom in Indian real estate. An interesting thing here is that the age group of 15 to 64 may be the earning age, but not necessarily the age for buying property. If we analyze the age of property buyers, the majority of buyers are between 30 to 55 years old. Typically, careers have just started before 30, and there aren't substantial savings.
After 55 years of age, people mainly focus on saving for retirement and usually don't make large investments. However, nowadays, even people under 30 are investing significantly in property. But if we look at the majority of buyers, they are between 30 to 55 years old. In 1990, 25% of the population was between 30 to 55 years old, and this is where the growth in real estate began.
By 2020, this number had increased to 32.5%, and by 2030, it is expected to reach 35%. Then, by 2050, consistently 35% of the population will be between 30 to 55 years old. Essentially, from now until 2050, a significant portion of the population will be in the property buying age category, and it is expected that the majority of them will be able to afford to buy homes.
The reasons for this will be observed from now until 2050, as the people in the age category of 30 to 55 years old will shape the real estate market style-based spending will definitely increase, but their financial responsibilities will be lower compared to the previous generation. Lifestyle spending is their personal choice, but they don't have a choice in financial responsibilities.
For example, about 30 to 40 years ago, it was common for many parents to have 2 to 3 children, but nowadays, many families have only one child. The trend of the dual income, no kids is becoming increasingly popular. Especially in metro cities, the dual income, no kids culture is becoming more popular. Looking at the numbers, in 1990, 38% of the population was under 14 years old, which decreased to 26% by 2020.
By 2030, it is expected to be 22%, and by 2050, it is expected that only 18% of the population will be under 14 years old. Essentially, in the next 26 years, the majority of the population will be between 30 to 55 years old. This means that income generation and property buying age will be within this age category. Despite spending on their lifestyle, they will still be able to afford to buy property.
Obviously, along with population, the country's economic growth, people's income levels, global political and economic scenarios also have a significant impact on real estate. However, all these factors have a lesser long-term impact on demand and a greater impact on property prices. These factors are what bring about booms or slowdowns within the market.
In India, property is not just an investment; it's an emotion. Therefore, if the population of income-generating individuals increases, the automatic demand for real estate will also increase, and the real estate sector will perform well. This does not mean that there won't be slowdowns. Whenever property prices increase significantly, automatic demand will decrease, leading to a slowdown in the market.
But, in the long run, if people have a need for property, after every slowdown, there will be a growth and boom phase. Over the next 26 years, we can expect to see two to three cycles of slowdowns and three to four cycles of growth and boom.
In the nut shell, the next 25 years will be a good time to invest in the Indian real estate market. What will happen after 2050? Will the Indian real estate market continue to perform similarly or will it stagnate like the Chinese market? We will discuss and write it in detailed later. Till then, thank you for your time. Good day.
