BENGALURU: Real Estate fund SUN Group plans to invest across real estate asset classes including industrial and commercial space in the country apart from
What are the major trends for Indian real estate in 2017?
1. Global capital flow into Indian real estate will increase further.
India ranked fourth in developing Asia for FDI inflows as per the World Investment Report 2016 by the United Nations Conference for Trade and Development. That is endorsement at the highest levels – and real estate saw equity investment on a very visible return journey to India last year. Indian real estate has attracted USD ~32 billion in private equity so far. The global capital flow into Indian real estate in 2016 stood at USD ~5.7 billion.
Though the historic high of 2007 (in terms of total PE inflows) was not breached, last year proved to be the second-best year so far. Despite Brexit and uncertainty around the new US President’s outsourcing and visa-related policies, private equity activity also looks healthy in 2017 – thanks to a strengthening and modernizing economy, and the growing reputation of India as an attractive investment destination.
India’s tier I cities moved up to the 36th rank in JLL’s 2016 bi-annual Global Real Estate Transparency Index. The catalysing factors for this were improvements in structural reforms and the more liberalized foreign direct investment (FDI) regime. Increased transparency brings higher investments into such real estate markets.
Thanks to changes in its regulatory framework, India is now way more attractive to both global and Indian investors. Increased consolidation and transparency – and the launch of REIT’s (Real Estate Investment Trusts) this year – will further whet their appetites for getting a piece of the Indian real estate pie.
2. Developers will revamp their business models.
Throughout 2016, the number of new residential project launches was lower than units sold. With all states staring at the approaching deadline to implement their versions of the Real Estate Regulation & Development Act (RERA), most of them will definitely fall in line. This landmark law will enforce hitherto unprecedented transparency and accountability requirements for developers into the system, and do a lot to increase consumer confidence. Consumer activism, which has already been making news in recent times, will increase in distressed ongoing projects.
And it’s not only RERA that the Indian real estate sector anticipates with bated breath. The Goods and Services Tax (GST) and the Benami Property Act will also have a major impact on how many developers run their businesses. Demonetization shook up the older ways of working, but did not affect self-governing developers with the right products targeted at the working masses. The rest have realized it is time now to revamp their existing business models if they want to remain in business at all. Market watchers who had despaired of the Indian real estate market ever shedding its tainted image have every reason to perk up now.
Corporate developers like Tata, Godrej, L&T, Bharti, Mahindra, etc. will acquire more projects, and corporate houses like Birla are gearing up for their maiden innings in real estate development. Institutional funding will increase.
3. Co-working: More of India Inc. will move into ‘hybrid’ spaces.
Co-working spaces are popping up across Indian metros as well as tier-II cities, providing start-ups with flexible working options at affordable rents. At last count, there were more than 100 operators in this space across India, though there is still very limited supply of co-working spaces available. However, this segment is slowly but surely moving into boom mode across India, given the many advantages that such spaces offer:
- Employee motivation and retention.
- Boosted productivity.
- Firms focused on agility who house their innovation teams in co-working spaces can induce a quicker learning curve to integrate them into the entrepreneurial ecosystem.
- The perfect option for companies who need their client servicing teams close to their respective client sites in locations with low office vacancy.
Certain co-working operators will prefer leasing out parts of or the entire areas of their co-working office spaces ‘anchor tenant’ corporates. In other words, co-working operators and corporates will move into a ‘hybrid’ sort of space and increasingly rely on each other.
4. The sun rises on affordable housing.
Affordable housing in India is finally set to get the much-coveted infrastructure status. One crore houses are to be built in rural India by 2019, and this vital segment will now see cheaper sources of finance – including external commercial borrowings (ECBs). Re-financing of housing loans by National Housing Banks (NHB’s) can give a further boost to the sector.
5. Office sector transformation: From REIT to complete.
The first REIT listing is expected within the next few months, and prominent private equity funds such as Blackstone will likely be the first movers. REIT’s will attract institutional and smaller investors alike because of their inherent nature to provide regular dividends at relatively low risk.
Smaller investors are especially excited at this new and easier investment opportunity because:
- Indian REIT’s will prefer to invest in commercial space developments – specifically the highest quality or Grade-A properties – because of the higher rental yields in this asset class; and
- Only 20% of an Indian REIT’s monies can be invested in development, which is the riskiest aspect. The remaining 80% of a REIT’s assets must be invested in income-producing property.
6. More industry consolidation on the cards.
Slowing sales and lack of financial prudence among several developers is leading to a fairly obvious conclusion – consolidation. The overcrowded real estate sector is going to become a lot leaner and meaner, with consolidation happening by ways of joint developments and joint ventures between landowners and/or small developers with bigger, better-organized players, smaller developers being bought out by larger players, and struggling developers cashing in their land banks by selling them to players with stronger balance sheets and appetite for growth.
Some investors and developers will take plunge into the market now, while others will prefer to ride the fence for a while; but one way or the other, consolidation will be the name of the game for the Indian real estate industry over the next five years. Larger players will peak in strength by around 2021, and smaller players will be eroded. Equity investment – or the lack of it – will play a deciding role.
Read more at: The Economic Times