INDIA (DOMESTIC FIRMS): An Introduction to Real Estate: Pan-India

Overview of the Market

A positive global perspective enhanced by conducive policy initiatives has resulted in a flourishing Indian real estate sector. The size of the real estate industry in India in 2024 was estimated to be USD0.33 trillion, and it is expected to reach USD1.04 trillion by 2029, growing at a compound annual growth rate of 25.6%.  

The industry demand has been further invigorated owing to the growing population, as well as favourable ownership sentiment that has seen a fresh thrust post-pandemic. With a 7% contribution to the GDP, a shift in investor preference from China to India, and booming IT demand, the sector is growing exponentially.

Besides the traditional commercial segment, there has recently been a rise in segments such as data centres and co-working, co-living, life sciences, industrial and warehousing spaces. India’s data centre stock is expected to double by 2025 to 20 million sq ft, from the current 10.3 million sq ft. In the housing segment, a shift has been observed in favour of low-density housing, the integration of technology in the form of smart homes, a higher preference for ownership, and heightened demand for luxury housing.

As far as investments are concerned, private equity investments in India’s real estate sector stood at USD4.2 billion in 2023, up from USD3.4 billion in 2022. In addition, the sector saw a three-fold increase in foreign institutional in-flows, worth USD26.6 billion during 2017–2022.

However, despite the growing market demand and encouraging legal and policy initiatives, the sector is marred by deep-rooted and perennial complexities that are rigid, administrative and technical. Legal advice is regularly sought by various stakeholders operating in the sector, on both traditional real estate matters and private equity transactional issues.

Legal challenges mostly pertain to delayed and pending projects, the unavailability or under-utilisation of available land, litigated land, a protracted approval process, enhanced financial and regulatory compliance burdens, labour management and the lack of availability or insufficiency of funds.

Government initiatives

Beyond urbanisation, strong GDP growth, increasing incomes, and other ancillary factors, a major role has been played by the government through beneficial legislation and policy initiatives to push the sector, as well as gain investor confidence. The following are a few notable schemes launched in the recent past to propel the real estate market, as well as provide relief to the growing Indian population:

• Pradhan Mantri Awas Yojana;
• Smart Cities Mission;
• foreign direct investment (FDI) of up to 100% for township and settlement development projects;
• an alternative investment fund (AIF) worth 25,000 crores to revive around 16,000 stalled housing projects; and
• an affordable housing fund (AHF) in the National Housing Bank (NHB) for microfinancing of HFCs.

In addition to these regulatory changes, tax exemptions, the infrastructure status of affordable housing and a favourable loan interest rate regime have proved beneficial for uplifting the sector, especially post-pandemic. In fact, to counter the adverse impact of COVID-19, which saw large-scale migration and disruption of supply chains affecting construction work and a consequent liquidity crisis, initiatives such as the home loan moratorium and extension of project registrations were implemented and were successful in reviving the market.

Laws governing real estate transactions in India

Matters pertaining to real estate transactions in India are governed by both central and state laws, primarily:

• the Transfer of Property Act, 1882;
• the Registration Act, 1908;
• the Indian Stamp Act, 1899;
• the Real Estate (Regulation and Development) Act, 2016 (RERA);
• the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013;
• the Indian Easement Act, 1882;
• the Indian Contract Act, 1872; and
• the State Land Revenue Codes.

In addition, state Rent Control Acts; Regional & Town Planning and Municipal Acts; Tenancy Acts; the Foreign Exchange Management Act 1999; the Indian Succession Act 1925; the Co-operative Societies Acts; the Insolvency and Bankruptcy Code; the Apartment Ownership Acts; the Rehabilitation and Resettlement Act, 2013; the Environment Protection Act, etc, also have some bearing on specific interactions in the real estate domain.

Some local customary laws also apply, to the extent that they are not inconsistent with the statutory laws. Understanding local laws and challenges is particularly crucial for large-scale acquisitions. In addition, planning and zoning are regulated by legislation, rules and regulations made by individual states and local bodies. These bodies are also responsible for providing sanctions, conversion of lands, occupation certificates, etc. Moreover, policies such as land ceiling policies, land pooling policies, special economic zones, benami transactions, by-laws, etc, may also pose significant compliance challenges.

Recent legal developments (RERA, GST and SEBI)

The Real Estate (Regulation and Development) Act, 2016 (RERA) has been a landmark piece of legislation that has proved invaluable in catalysing the growth of the domestic real estate sector in India. The Act has made it obligatory for states and union territories to structure their own regulator, outlining rules to govern the operation of the regulator within their jurisdiction. It has brought about a substantial shift in the market and has identified challenges in its execution, aiming to make the real estate sector more efficient and transparent.

Similarly, the implementation of goods and services tax (GST) has been instrumental in bringing regulation, transparency and accountability to the Indian real estate sector, attracting investment and fostering growth. The highlight of the GST regime for the real estate sector is the availability of a broader level of input tax credit (ITC) paid on inputs, capital goods and input services.

On 12 May 2023, the Securities and Exchange Board of India (SEBI) issued a consultation paper proposing a regulatory framework to govern fractional ownership platforms (FOPs). In November 2023, SEBI approved amendments to the SEBI (Real Estate Investment Trusts) Regulations in the 2014 (REIT Regulations) to create a framework for the facilitation of small and medium REITs with assets valued at a minimum of 50 crores.

Common legal issues

The sector is unfortunately complicated by a web of compliance burdens, bureaucratic red tape and a lack of conducive policies. Issues like complicated prior real estate transactions, non-available and illegible erstwhile title and revenue documents, incomplete computerisation of land records, and cases of fabricated records, have made the process of establishing a clear and marketable title to real estate a multi-layered and complex pursuit.

Disputes over clear and valid title are commonplace, with partition, succession, repairs, encroachment, etc, adding fuel to the fire. Fraud, counterfeits, false promises and misrepresentations in real estate transactions form another major chunk of legal issues in the domain. Despite efforts to bring transparency and limit government interference, bribery and corruption continue to pose a serious risk to the Indian real estate market.

Government intervention is therefore still being sought to meet the demands of granting the sector industry status, streamlining property title issues, increasing transparency in transferring land records, establishing a single window clearance system to enable quick approvals and cost management, as well as providing financial backing, especially last-mile funding, all of which remain priorities for the varied stakeholders operating in this dynamic sector.