The term ‘real estate’ is inclusive of any physical property consisting of improvements such as buildings, roads, fixtures, utility systems and so on. Real estate is of many types – land, residential, commercial, and industrial are four broad categorisations of the industry at large. Out of these, the residential segment occupies the largest market share, as depicted in the graph below. The escalating demand for residential properties, growing expenditure capacities of consumers, and rapid urbanisation are some of the key factors driving the market. As real estate property can be bought and sold, rented, or leased, it is among the most significant investments that result in passive income, tax benefits, long-term security, good returns, diversification, building capital, and protection against inflation.

Historically, real estate has always been a cyclical industry, reacting to macroeconomic trends such as interest rates, population growth, and economic strength. The size of the global real estate market was valued at USD 3.69 trillion in 2021, and is expected to grow at a CAGR of 5.2% between 2022 and 2030. However, these estimates were skewed by the impact of the COVID-19 pandemic; owing to strict lockdown regulations imposed around the world, halts and delays at every step from project planning to construction to sales led to a severely sluggish growth rate of the industry. Fortunately, activity in the industry began to rebound despite the huge reduction in sales during the pandemic, thanks to potential buyers ramping up their search for and purchase of homes, the influence of the internet regarding online real estate services and various initiatives taken by national governments, which have all boosted the growth of the real estate market.

The major real estate regional markets in the world may be divided into North America, Latin America, Europe, Middle East and Africa, and Asia Pacific. Research suggests that Asia Pacific is the largest regional market, with a market share of 52,6%; apart from its abundant population, other factors driving the Asia Pacific market include growing demand for contemporary and modern office spaces, expanding expenditure capacities of consumers, and increasing infrastructural projects. The tourism sectors in developing countries such as India, Philippines, Indonesia, Thailand, and Vietnam are further estimated to support the market growth in the region.

As for revenue comparisons, the US recorded the highest revenue in 2021 (USD 349.9 billion), is anticipated to reach USD 412.6 billion by 2025, and has consistently been at the top of the list of most prosperous real estate markets worldwide. In terms of production value, Germany comes in first at USD 123,028 million in 2019, followed by the UK, France and Denmark. Prominent players in the global real estate market include the likes of companies ATC IP LLC., Brookfield Asset Management Inc., Coldwell Banker and so on. In 2022, the top spots in the list of companies earning the highest revenues were occupied by firms from China and Hong Kong, which are key contributors to the Asia Pacific market.

Real Estate In India

While it is widely known that India’s agriculture sector employs the biggest share of its workforce, the industry that comes second to it is subject to speculation. With an estimate of nearly 70 million employees in 2022, the real estate industry in India is not to be overlooked. Growth in urbanisation as well as the middle class allows the real estate industry to function as a critical driver of India’s economic development. The following graph depicts the market size of the real estate industry in India from 2008 to the forecasted size in 2030.


The real estate industry of India is significant for a number of interrelated reasons. Following the liberalisations of the early 1990s, the resulting economic boom created a high demand in all segments of real estate, including the commercial, industrial, retail, warehouse, hospitality and residential segments. Further, the construction industry, which provides a substantial share of the Indian workforce, is closely connected to real estate as well. During the years of high GDP-growth rates, the Indian real estate industry cultivated a profitable circle of attracting investments, generating jobs for predominantly unskilled workers, and providing the property that other industries needed as office space, or for commercial and residential purposes


The residential segment of the Indian industry had been steadily declining even before the COVID-19 pandemic, with respect to sales and occupancy. This decline could have been triggered by the combination of various causes such as government regulations, gaps between demand and supply of housing (particularly among low income groups) and more. Therefore, the main channel of real estate in India in recent years has been the office and the retail segments; these two segments procure a high level of profit and investments as a result of increased growth in and demand from tech companies and the e-commerce market respectively.

The Government of India exerts a considerable influence over Indian real estate, either directly or indirectly. For instance, government policies, demonetisation, and the introduction of GST have all affected the real estate industry in some manner. On the other hand, the “housing for all” program launched in 2015 or the initiation of the Real Estate Regulation Authorities (RERA) in 2017, were directly targeted at the sector, with the comprehensive aim of reducing corruption and illegal property development across the country, and also enhancing the affordability of housing and reinforcing buyers’ rights.

House Hunting Goes Online

The COVID-19 pandemic has not spared any industry across the globe, affecting them in varying ways and degrees, and the real estate industry is no exception. The lockdown rapidly accelerated the digitisation of the real estate sector; due to the highly competitive housing market in the peak-COVID year of 2020, some buyers purchased their homes without ever physically stepping foot inside their property. While that may sound incredulous, the buying process actually became more convenient with the help of advanced modern technology.

Climate Change Creates Concern

Over the years, climate change has shifted from a peripheral thought to an immediate, pressing concern across industries. The global real estate industry has placed combating climate change at the top of the agenda; investors have made net-zero commitments, regulators have devised reporting standards, governments have enacted laws targeting emissions, employees demand action, and tenants demand more sustainable buildings. However, the growing physical repercussions of climate change, manifesting in the form of global warming and natural calamities, have created an impending sense of urgency in the real estate sphere to take effective action to decarbonise. The climate transition not only creates new responsibilities for players in the industry to revalue and future-proof their portfolios, it also brings opportunities to create fresh sources of value. Climate change and real estate are mutually influenced by each other – while establishing climate intelligence is central to value creation and strategic differentiation in the industry, real estate is central to worldwide climate change mitigation efforts as well. Approximately 39% of total global emissions arise from the real estate industry. About 11% percent of these emissions are produced by manufacturing materials used in construction (including steel and cement), while the rest is emitted from buildings themselves and by generating the energy that powers these buildings. As such, it becomes vital that the industry makes brisk, substantial progress with respect to decarbonisation and sustainability. The below graph depicts real estate investors’ opinions on the most important environmental, social and governance (ESG) measures in 2022 (the elements included in this graph are pertinent to the environmental aspect only).


Undoing decades of adverse environmental impact and instituting newer, cleaner real estate structures worldwide is a mammoth endeavour that cannot be achieved overnight, or even over a few years. It requires careful and extensive consideration, formulating the ideal strategy and devising steps to carry it out.


Demand For Luxury Housing

In 2022, a principal agent of growth in the Indian real estate market was the luxury segment, and this trend is expected to continue throughout 2023. Statistics indicate that a significant percentage of the total housing units sold in the first half of 2022 were luxury homes; that is, about 1.84 lakh units were sold in the top seven cities during the period, of which approximately 25,700 (14%) were from the luxury segment. Despite rising home prices, the desire to own a home persists for varying reasons.


The COVID-19 pandemic is primarily responsible for the boom in the luxury market, as it has produced a convergence between “luxury real estate” and “quality of life.” As per an industry study, a 40% growth is anticipated in market revenue during the forecast period, as demand for ultraluxury homes priced at or above INR 5 crore has improved, prompted by changing needs during the pandemic. The luxury residential real estate market witnessed an expansion as people wished for a shelter where they were not just protected but could also experience the comfort of luxury, given that they had to spend most of their time at home. Further, the currently growing work-from-home trend has also contributed to the robust demand for luxury housing. Majority of employees still do not return to their workplace as frequently as they did before the pandemic, preferring to work from home. Naturally, the increased time spent at home calls for as much comfort as possible, calling for a home to function as a live-in work space. In relation to the spike in luxury housing, the work-from-home phenomenon has also lead to higher office vacancy rates, in contrast to every other property industry. More and more businesses are cutting staff or opting not to extend their leases, with some renters subletting their offices till their contracts are up. Thus, while a mass exodus from office buildings is highly unlikely, the quantity of office space that will be required in the future is unclear.


Interest rates impact the price and demand of real estate; lower rates bring in more buyers, reflecting the lower cost of a mortgage, while also expanding the demand for real estate, which can then drive up prices. Real estate prices often follow the cycles of the economy, but investors can mitigate this risk by buying REITs, or other diversified holdings that are either not tied to economic cycles or that can withstand downturns. Interest rates for housing loans have been at historic low rates since 2021, with premier lending institutions offering attractive home loan options in the range of 6.75% to 7.50%. This allows for considerable savings, while creating an asset for the purpose of end-use or investment. In fact, a lower interest rate offers borrowers the option to increase the loan amount, which broadens their choice for a more luxurious property, inclusive of finer amenities and lifestyle facilities in premium neighbourhoods.

As the graph depicts, The Reserve Bank of India fixed its benchmark repo rate at a record low of 4%. These lower interest rates have accelerated the luxury residential real estate market in India, attracting more buyers to the market. The Indian real estate sector is generally segmented by type (villas and landed houses, apartments, and condominiums) and by cities (metro cities New Delhi, Mumbai, Bengaluru, Kolkata, Chennai, and Other Cities); these interest rates spurred an increase in purchases across these segmentations. However, some analysts predict that the era of low interest rates is over and that rates are anticipated to steadily climb from 2023 onwards


Smart homes utilise devices and appliances to perform actions, tasks, and automated routines to save money, time, and energy. Home automation systems allow for the incorporation of various smart devices and appliances, controlled through a centralised system. The rise of smart homes is primarily guided by factors such as perpetually growing internet users, greater adoption of smart devices, awareness of fitness and healthy lifestyles, and a rising sense of home safety and security. According to research, the revenue from smart homes in India is expected to touch a CAGR of 12.90% (between 2022 and 2026), resulting in a projected market volume of USD 8,390 million by 2026. The number of active households in the smart home market is expected to amount to 54 million users by 2026. Metropolitan cities like Mumbai, Kolkata and Bengaluru hold a larger share of smart homes in India. In the year 2021, survey reveals that 39.4% of smart home users are in the highincome group, and 25.9% of users are 25-34 years old in India. The below graph displays the revenue of the Indian smart home market over recent years.

Taxation In Real Estate


The activity of development of real estate is considered to be in the nature of business activity, thus, the income arising from such activity is to be treated as business income in the case of a real estate developer. As real estate projects are generally of large volume and take several years to complete, complex accounting and taxation issues may arise, regarding recognition of income in different years. These complex accounting issues could not be convincingly addressed by general principles of income recognition as prescribed by Accounting Standard on Revenue Recognition (AS–9), issued by the The Institute of Chartered Accountants of Indian (ICAI). Therefore, Guidance Note on Recognition of Revenue by Real Estate Developers was issued by ICAI in 2006, and was revised comprehensively in the year 2012; Presently, this revised guidance note for accounting and income recognition of real estate transactions is applicable for real estate developers in India. Moreover, Accounting Standard–7 (AS–7) is applicable for real estate transactions, prescribing accounting principles for the preparation of financial statements by the contractors. Theses principles for construction contracts are also relevant for real estate developers, as the Guidance Note issued for real estate developers is based upon the principles established in AS–7 for construction contracts.


Under the Income-tax Act, 1961, there is no specific provision regarding taxability of income of real estate developers, and therefore, general provisions of computation of business income prescribed under the Income-tax Act shall be applicable, along with other relevant provisions of the Act. Further, the income recognised by the developers in the financial statement prepared in accordance with various Accounting Standards and Guidance Note issued by the ICAI/MCA shall form the basis for the computation of taxable income under the Income-tax Act. Moreover, provisions of section 145 of the Income-tax Act regarding the method of accounting regularly employed by the assessee are also relevant.

The primary issue for real estate developers is deciding whether they are to follow the Completed Contract Method (CCM) or the Percentage of Completion Method (PCM) for revenue recognition, in preparing their Annual Financial Statement. The key difference between the two and their tax implications are as follows:

Under the Completed Contract Method, revenue is recognised only when ownership of property is transferred. In the case of real estate projects, ownership of the property can only be transferred when property comes into existence and physical possession of the property is handed over. Since projects generally take years to be completed, no revenue is recognised during the years when the project is under development, and the whole of the revenue is recognised in the year when the project is completed and possession is handed over. Thus, no taxable income is generated during the years when the project is being developed, and an assessee may prefer to follow this method to defer the tax liability; however, they may sometimes lose the benefit of set off of brought forward losses, as unabsorbed business losses brought forward from earlier years may lapse.

Under the Percentage of Completion Method, revenue is recognised on a year-to-year basis during the project development, as per each stage of completion. Here, revenue is recognised in the financial statement even before property comes into existence and physical possession of property is handed over; income is recognised by estimating the total project revenue to be earned, and total project expenses to be incurred. In this case, tax liability is discharged by the assessee on a yearto-year basis, and it is not accumulated to be paid in one go on completion of the project.


Although tax authorities prefer the adoption of the CCM as it results in earlier collection of taxes, they cannot impose and do not have power to insist on any particular method for revenue recognition and computation of taxable income by the real estate developer. There has been judicial controversy in the past, regarding the adoption of the accounting method based on which income is to be calculated by the developer. The ICAI has prescribed the adoption of CCM or PCM at different periods under AS–7 and AS–9, read with the Guidance Note for accounting applicable to the real estate transactions. As the provisions of the Income-tax Act are also to be considered in the computation of taxable income, some cases have stirred up controversy and have been taken to court. Judicial decisions tend to favour the principles of section 145 of the Act, and often do not approve of frequent changes in accounting methods.

Risks & Solutions

While the real estate industry is a prominent contributor to the growth of the global economy, it faces some risks and challenges that must be acknowledged and addressed by developers, firms, and investors. The following are some risks inflicted on the real estate industry, and concordant solutions to the same


An unpredictable market is a major risk to be considered by investors in real estate. Market forecasts provide valuable insights on the potential direction in which the market is headed, however, macroeconomic factors (such as downturns in the economy, changes in government policies, a global pandemic) beyond the control of any player in the industry can affect the industry at any time.
As an investor, it is vital to stay updated with the market economy and understand its movements; doing so will help prepare for any downturns and determine which time is best to invest..
Real estate investments lack liquidity, when compared to other assets such as stocks or gold. This implies that an investor cannot convert property into instant cash in a dire situation.
Real estate investments are ideal for long-term returns and should be treated as such; if an investor does not have a long-term perspective while investing, they may be forced to sell their property at rock-bottom price and incur severe losses.
Location is a critical factor that concerns the value of a property. Properties in prime locations offer much better ROIs than others, hence thorough assessment of the location prior to investment is useful.
Investors must research factors such as crime rates, urbanisation and gentrification before investing in a property.
Property depreciation is another major risk faced by investors as not all properties are guaranteed to appreciate over time, and some may end up losing value.
This can be avoided by careful selection of assets; investors may conduct their own research on real estate statistics and market analysis to avoid investing in properties with depreciation potential.
Structural risks such as mould and foundation damages can also plague an investor by driving up costs through maintenance and repair work.
To avoid this problem, investors must choose to associate only with reliable developers with sound portfolios, and have their property evaluated by professional appraisers


As a real estate firm, it is more than necessary to keep up with the times in terms of property listings and marketing, as failure to leverage technology can have quite detrimental effects. As house hunting has taken the online route, firms must comply with this trend to remain competitive in the market.
Firms can use resources such as social media, listing websites, and other platforms to build a solid customer base and capture leads. They may also analyse which platform attracts the majority of their target audience and create a marketing plan accordingly
Firms face a number of responsibilities handling, selling and renting properties. They must consciously abide by real estate laws that consist of confidentiality, ensuring that the buyer is aware of any faults in the property, and so on. If firms are unable to comply with the regulations put in place by the government, not only do they risk legal trouble, but also lose credibility among buyers.
To avoid this, firms can employ competent real estate CRMs to manage things efficiently and maintain transparency in their transactions with customers.
Real estate firms often struggle with high lead costs; when firms focus solely on capturing leads rather than retaining them, their conversion ratio is sure to decrease. Lead costs tend to skyrocket when capturing buying leads from various platforms and paid campaigns. Improving the conversion rate is the only way to solve this issue.
firms must nurture a streamlined sales process to convert more leads into buyers. Once a lead is captured, firms can segment them based on preferences, interest, location, and other patterns. This data will provide a gist of the likelihood of the leads being converted, gradually improving the lead conversion ratio.
As elaborated before, climate change concerns are presently a matter of grave importance in the real estate sector, and failure to address these concerns can have negative impacts on firms, in the form of loss of clientele, fall in revenue and profits and so on.
To avoid this situation, firms must prioritise the implementation of ESG strategies, and create a framework to restructure their operational model to make it more sustainable and environmentfriendly.
A broader challenge in the industry is the comprehensive concern of meeting revenue targets. Sustained high inflation, workforce management, and cyber risk are some issues that are bound to have the most impact on revenues over the next 12 to 18 months. Global real estate leaders have mixed expectations about revenue improvement and their ability to adapt to changing global demands. However, the real estate industry is not one that can be easily trumped; its cyclical nature, along with effective strategies implemented by individual firms, can allow it to thrive in the face of uncertainty.

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