_Infrastructure: The Linchpin of India’s Real Estate Story

As like other sectors of the economy, real estate is critically dependent on the quality and availability of infrastructure. However, now the tides have turned as infrastructure now looks at complimenting real estate to improve its viability and fund its growth. This transition has taken decades to occur and as India moves up towards being in the top three to five economies in the world, it is important to understand how infrastructure and realty have evolved over the last few decades. 

The growth in infrastructure sector has been a long and painstaking one. Historically, India has invariably had a lower focus on infrastructure. Post-independence, the initial focus was on creating power infrastructure.  Since the year 2000, the road sector gained prominence when the Golden Quadrilateral Corridor was developed. The telecom infrastructure also started to take ground with private players in the mix, particularly the mobile telephony. The success of privatisation in road and telecom infrastructure soon moved into aviation, ports and then power from the early and mid-2000s till 2010.

From 2000–2010, the private sector increasingly started to invest in the creation and expansion of infrastructure. During this period, the private sector investment in infrastructure also increased to about 30% of the total investment. This rose to about 37%–38% in the 12th Five Year Plan, however, as of 2018, it has reduced to about 25%.

While the government spending in infrastructure has generally remained within 5%–6% of GDP, most of it came through its own sources. The government is now working towards creating an enabling environment and regulations for private sector investment in infrastructure, while also looking at alternate and efficient ways of generating funds to continue infrastructure investments.

While some of the funds came through cess, tolls and tariffs in usage of public infrastructure, the government is actively working to use/monetise land assets and corresponding real estate assets to source additional revenues and reduce fund requirements. 

The non-farebox revenues are continuing to gain prominence with increasing share of revenues being targeted from it. The privatised Delhi and Mumbai airports, forming part of aviation infrastructure, now earn more from real estate and associated revenues (the non-aero or non-farebox revenues) than the aero revenues. This is now increasingly being used across rail and metro projects. These include the railway station redevelopment that is being undertaken by IRSDC and RLDA Multi-Functional Complexes.

For India to move from a USD 2.5 to a USD 5 trillion economy by 2025, it needs to increase infrastructure growth – with an estimated USD 4.5 trillion investment needed in infrastructure by 2040, assuming India grows annually at a rate of about 5.5%. To achieve this, the government has embarked on several large programmes expected to bring the required impetus in the economy.

Such infrastructure provisions will bolster the real estate market by opening not only, the serviced lands and market for real estate but also the private sector expertise in the services industry. The industrial corridors programme is providing thousands of acres of serviced land in a 'Smart City' environment across India. This opens up opportunities for the private sector to provide professional city management services. 

Amongst the several infrastructure investments made in the country, the metro rail has the potential to have a significant impact on real estate. With 15 cities vying for investments to build around 650 km of metro rail across the country, they are unlikely to succeed or even survive based on farebox revenues only. Being investment intensive, local authorities must gear up to leverage real estate, land monetisation and VCF tools to garner funds to support its operations and further expansion. This would require substantial efforts from local authorities to manage proactively the administrative and regulatory challenges. It is for us to demonstrate how best a good real estate and public transit environment co-exist.

Investment opportunities in the infrastructure sector continue to grow and along with it the continuous development of realty.