Historically, growth rates have been determined by industrial, agricultural, and service sector expansion, but the trading market is also an important source of new capital.
According to Dr. (h.c) Tushar Deochakke, real estate has long been the most popular form of investment for those who can afford it. An interest in real estate has meant purchasing private property primarily for self-residence. Cross-country comparisons, individual country studies, and industry and firm-level analyses all point to a positive relationship between financial system sophistication and economic growth. While some gaps exist, the financial system is said to be inextricably linked to economic performance. In 1952, Nobel laureate Joan Robertson stated, “Where enterprise leads, finance follows.” According to this viewpoint, economic development generates demands for various financial arrangements, which the financial system automatically meets.
Traditionally, growth rates have been determined by the growth of the industrial, agricultural, and service sectors; however, the trading market is also a significant source of capital formation and plays an important role in the global economy. As a result, the stock market in developing economies such as India is rapidly expanding, and the Indian real estate market is expected to be worth trillions of dollars by 2030. Liquid markets improve capital allocation and long-term economic growth prospects by allowing for longer-term and more profitable investments. Furthermore, by reducing investment risk through Blockchain technology for governance, stock market liquidity can result in more savings and investments.
Real estate assets are recorded at cost, even though the market value of many properties could be significantly higher. Listing these assets on the platform broadens their trading opportunities by making them available to a wider variety of investors and liquid with cash flow generation potential, increasing market capitalization and having an economic impact on the local and national economies via transactions and taxes.
The Indian property market is expected to quadruple over the next 6-8 years. New infrastructure development in India will require approximately USD 4.5 trillion for everyone to maintain the pace of growth and become the second-largest economy by 2036.
The REIT regulations have recently been tweaked to accommodate smaller asset owners. But, it is crucial to understand and accept that Indians are conservative by nature, and real estate investments are used to hedge against capital market volatility. Thus, while the number of dormant accounts registered has tripled in the last five years, the actual investor base is much smaller. REITs were first introduced in the 1960s. But, they still account for less than 2% of global real estate asset valuations.
Small investors’ ROI from REITs has been low, while real estate developers, asset owners, and managers continue to investigate various funding options for new development assets and their pipelines. Further banks have sectoral restrictions for lending. On the other hand, Indians invest up to twenty lakh crores per year in bank fixed deposits, where inflation-adjusted returns are negligible, even though the entire economy had around rupees 188 lakh crore in fixed deposits at the end of last year.
While the Jan-Dhan Yojna (Banking for the Poorest of the Poor), which was previously ridiculed, accumulated Rs. two lakh crore in a short period, this allows users to visualize the impact a middle-class retail investor can have on the economy if given the right opportunity. While global fund managers are allocating larger absolute amounts to their India desk, it remains a small percentage of their entire global portfolio. This comes after the Ministry of Finance established the National Asset Monetisation Pipeline and the National Bank for Infrastructure Development.
Global pension funds and private equity funds invest in India, but the fact that repatriation for strategic exits takes years, if not decades, discourages them. RERA has significantly changed the perspective of large global fund managers looking to invest in a project’s early stages. Being classified as a promoter entails a slew of RERA obligations, such as regulatory filings, obtaining completion or occupation certificates, ensuring the project, and so on, with failure to comply resulting in severe penalties. While investment documents are typically drafted to give investors broad rights to protect their investments, it is now worthwhile to structure investments so that an investor can avoid participating in the entity’s day-to-day affairs and management, as well as project implementation.
While the rest of the world has gone digital, real estate markets continue to use ancient and archaic methods of asset management, trading, and settlement. This is especially evident in the property markets, which use highly manual and time-consuming methods for administering and trading assets. As, a result, the real estate market is notoriously illiquid and inaccessible.