Ahead of the curve
Siddhart Goel, Bengaluru-based Senior Director, Research Services of Cushman & Wakefield
Global investors are well equipped to take advantage of the potential that Indian real estate markets offer
By Nithin Belle
Published: Mon 14 Aug 2017, 6:00 PM
Last updated: Mon 14 Aug 2017, 8:00 PM
While many real estate developers in India are bemoaning the alleged slowdown in the off-take of properties in top cities around the country, international investors continue to remain bullish on the sector.
A recent research report - Betting on Asia Pacific's Next Core Cities - by Cushman & Wakefield, the Chicago-headquartered real estate services company, found that Indian cities were among the top-10 markets targeted by investors.
"Most of the global investments for this year will be made in commercial office assets as markets in Bengaluru, Chennai, Delhi NCR, Hyderabad, Mumbai and Pune are well placed to outperform other cities from emerging economies in Asia Pacific," says Siddhart Goel, Bengaluru-based Senior Director, Research Services of Cushman & Wakefield.
According to him, after having learnt many valuable lessons between 2005 and 2008, global investors are now well equipped to take advantage of the potential that Indian real estate markets offer.
"The country is firmly on track to become an economic powerhouse with strengthening GDP, better business environment and investor-friendly policies by the central government," he points out. "Despite concerns about global events such as Brexit and changing U.S. immigration policies impacting the IT-BPM sector in India, we have seen that other sectors such as BFSI, healthcare, consulting services and various manufacturing industries are increasingly driving demand for commercial spaces."
This has resulted in net absorption across the top eight Indian cities to remain in the range of 32-35 million square feet in the last three years even as the share of the IT-BPM sector in commercial office leasing has steadily gone down from 65-70 per cent to 52-55 per cent during this period.
Excerpts of an interview with Goel:
Which are the sectors that will contribute to the growth in demand for commercial space in India?
Whilst the IT-BPM sector will continue to be the primary growth driver for commercial office space, demand from BFSI (including those involved in fintech), Consulting (including data analytics, legal services, etc.) and the industrial sector comprising various manufacturing industries like automobiles, pharmacy and healthcare, engineering and heavy industries, is expected to increase significantly from last year.
We are noticing that the share of IT-BPO sector in overall leasing has been steadily declining from the highs of 65-70 per cent up to five years ago, to around 52-55 per cent last year, and this is set to decline to around 50 per cent this year.
One interesting trend that will manifest even more visibly is that a large part of the demand will also come from co-working spaces for at least the next couple of years. However, most of the co-working companies will cater primarily to clients from the IT-BPO sector.
Could you provide an estimate of the capital outlays being made by global investors for investment into the Indian real estate sector - both commercial and residential?
Over the past one-year (July 2016 to June 2017), international investments in commercial office were to the tune of $1.7 billion, $798 million in retail assets (malls), and $704 million in residential assets.
Together, these represent about 44 per cent of the total institutional investments (private equity funds, pension funds, sovereign funds, etc.) that have been recorded in India during this period and were about 63 per cent higher than the previous year.
Do you see reforms in the real estate sector and the introduction of RERA prompting global investors to boost their investments into the Indian sector?
The large number of regulatory reforms and initiatives by the Indian government are already infusing higher confidence in global investors, especially as more transparency and accountability are being built into real estate transactions.
Most notable of all is the Real Estate (Regulation & Development) Act, 2016 or (RERA), which has given much-required boost to the confidence of private equity funds eyeing investments in the real estate sector by making it more transparent and organised.
Combined with other policy initiatives, which include Make in India, GST, Benami Transactions Prohibition Act, introduction of REITs and the thrust on infrastructure projects, there will be a significantly positive impact on new investment opportunities being created for both domestic and global investors.
Apart from commercial office and residential sectors, a positive industry outlook for other asset classes such as retail, industrial and logistics and warehousing is resulting in increasing investor interest.
Many international and domestic funds have announced plans and some are already in the process of raising more funds for investment in Indian real estate.