Is Real Estate a Good Investment and Business in India?

Real estate has long been seen as a cornerstone of wealth creation, and in India, it continues to capture the imagination of investors and entrepreneurs alike. But the question remains: is real estate a good investment in India today?

The short answer: It depends heavily on timing, location, and your risk appetite. Whether you’re considering owning a rental apartment, flipping land, or starting a construction business, the decision must factor in macroeconomic conditions, policy changes, and market demand.

Let’s explore the advantages, challenges, and evolving trends that define real estate investment in India – and help you decide if this sector fits into your financial goals.

Advantages of Investing in Real Estate in India

1. Steady Growth

According to the National Housing Bank’s (NHB) RESIDEX, which tracks housing prices in major cities across India, the residential real estate market has witnessed consistent growth over the years. This upward trend suggests that, under the right conditions, real estate can be considered to offer potential for long-term capital appreciation.

2. Increasing Urbanisation

India’s cities are expanding. With millions migrating from rural areas to urban centres each year, the demand for housing and commercial infrastructure continues to soar. This growing demand positions real estate as a promising avenue for those wondering whether real estate is profitable in India.

3. Government Initiatives

The Government of India has implemented various initiatives to boost the real estate sector and attract investment. The introduction of the Real Estate Regulatory Authority (RERA) and Goods and Services Tax (GST) has increased transparency and streamlined processes in the sector, making it more attractive to investors.

4. Infrastructure Development

Investments in infrastructure development, such as the construction of new highways, metro systems, and airports, have a direct impact on the real estate market. These developments not only improve connectivity but also drive up property prices in the surrounding areas, presenting investment opportunities for real estate investors.

5. Foreign Direct Investment (FDI)

Foreign investors have shown considerable interest in India’s real estate market. Foreign investments in the commercial real estate sector were at USD 10.3 billion from 2017-2021. This influx of foreign investment signifies the confidence of international investors in India’s real estate sector. The presence of global players like Blackstone, Brookfield, and GIC shows a strong international belief in the potential of the Indian property market.

6. Rental Yield Potential

Rental income can be an essential aspect of real estate investment. According to a report by Knight Frank India, major cities in India have witnessed stable rental yields over the years, ranging from 2% to 5% annually. However, it is important to note that rental yields can vary significantly depending on the location, property type, and market conditions.

7. Affordable Housing Segment

The affordable housing segment in India has gained traction in recent years, driven by government incentives and subsidies. The Pradhan Mantri Awas Yojana (PMAY) aims to provide affordable housing to all by 2022. This sector presents opportunities for investors looking for long-term returns, given the rising demand for affordable homes.

8. Real Estate Investment Trusts (REITs)

The introduction of Real Estate Investment Trusts (REITs) in India has provided retail investors with an avenue to invest in income-generating properties without directly owning them. REITs offer the potential for regular income and capital appreciation, making them an attractive option for investors seeking diversification in their investment portfolios.

Disadvantages of Investing in Real Estate

While real estate investment in India offers various advantages, it is essential to consider the potential disadvantages as well. Here are some key drawbacks associated with investing in real estate in India:

1. High Initial Investment

Real estate investment often requires a significant amount of capital, especially in prime locations or metropolitan areas. The high cost of entry may limit accessibility to the market for some investors. Apart from this, residential homes in India are often priced at very high multiples of average incomes, compared to other countries. The opaque nature of real estate prices makes it difficult to judge its quality as an investment.

2. Illiquid Asset

Real estate is generally considered an illiquid asset, meaning it may take a considerable amount of time and effort to sell a property and convert it into cash. This lack of liquidity can be a disadvantage for investors who require quick access to their funds.

3. Market Volatility

From demonetisation to COVID-19, the Indian real estate market has seen sudden downturns. The real estate market in India can be subject to significant fluctuations and volatility. Economic factors, government policies, and market conditions can impact property prices and rental yields. Sudden market downturns can lead to a decline in property values, affecting potential returns on investment.

4. Regulatory and Legal Challenges

The real estate sector in India has historically faced challenges related to regulatory compliance and legal complexities. Issues such as delays in obtaining necessary permits, disputes over property ownership, and lengthy legal procedures can add significant risks and uncertainties to real estate investments.

5. Maintenance and Operational Costs

Owning and maintaining a property entails additional costs such as property taxes, maintenance expenses, utility bills, and repairs. These ongoing expenses can impact the profitability of the investment and require careful financial planning.

6. Project Delays and Quality Concerns

Real estate projects in India often face delays in completion, which can impact the expected returns for investors. Additionally, concerns related to the quality of construction and adherence to building standards have been reported in some cases, highlighting the need for thorough due diligence before investing.

7. Tenant-related Challenges

For those investing in rental properties, dealing with tenants can present challenges. Issues such as non-payment of rent, property damage, and legal disputes can arise, requiring time and effort to resolve. Vacancy periods can also impact rental income, affecting the overall profitability of the investment.

Market Size and Growth of the Real Estate Sector in India

The real estate investment in India story is expanding rapidly, both in scale and ambition.

The sector is expected to reach USD 1 trillion by 2030, up from USD 200 billion in 2021, and contribute 13% to India’s GDP by 2025. As India urbanises, real estate has evolved far beyond just housing. Retail, hospitality, and commercial real estate are growing significantly, helping meet the country’s infrastructure demands and transforming cityscapes.

Looking even further ahead, projections suggest the Indian real estate market could hit USD 5–7 trillion by 2047, with a possible upside of over USD 10 trillion, making it one of the largest in the world.

The momentum is visible in residential sales as well. In FY23, home sales reached an all-time high of ₹3.47 lakh crore (USD 42 billion) – a 48% year-on-year jump. The volume of units sold rose by 36%, crossing 379,000 homes, reflecting a surge in both end-user and investor confidence.

This explosive growth underscores the sector’s resilience, investor appeal, and central role in India’s economic engine.

The real estate sector in India has witnessed several developments and reforms in recent years, such as the introduction of Real Estate (Regulation and Development) Act (RERA), Goods and Services Tax (GST), Insolvency and Bankruptcy Code (IBC), Affordable Housing Scheme (PMAY), Real Estate Investment Trusts (REITs), Smart Cities Mission (SCM), etc. These initiatives have improved the transparency, accountability, affordability and efficiency of the sector.

The real estate sector in India has also witnessed several trends and innovations, such as green buildings, co-working spaces, co-living spaces, data centres, warehousing, logistics parks, integrated townships, smart homes, prop tech, etc. These trends and innovations have enhanced the quality, sustainability, functionality and attractiveness of real estate properties in India.

Conclusion

It is important for potential investors to carefully evaluate these advantages and disadvantages and conduct thorough research and due diligence before committing to real estate investments in India. Consulting with professionals and seeking expert advice can help mitigate risks and maximise the potential returns on investment.

FAQs