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Is buying a flat in Mumbai a good investment?
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Best Way buying a flat in Mumbai a good investment
Foreign investors have given up a thumbs-up to the Indian investment policy for the real estate sector which has helped the country regain favor as a preferred investment destination in the Asia Pacific region.
Mumbai, Bengaluru, and New Delhi were ranked 12, 15 and 20 by survey respondents as top investment cities, according to the Emerging Trends in Real Estate Asia Pacific 2018 report, jointly published by PricewaterhouseCoopers (PwC) and the Urban Land Institute (ULI).
Sydney, Melbourne, Singapore, Shanghai and Ho Chi Minh City were the top investment cities globally.
The report also noted that the Implementation of the goods and services tax (GST) and last year’s demonetisation have not only created liquidity issues for the real estate sector but also impacted investment and development prospects of the cities, thereby pulling down their rankings.
While Mumbai ranks 12th in the list of preferred investment destination for 2018 — massively down from the second rank last year, and it stands at the 8th slot in terms of development prospects. Similarly, Bengaluru and New Delhi stand at 15th and 20th position respectively in the investment destination ranking against 1 and 13 respectively last year, while they are at the 16th and 18th positions respectively, on the development destination ranking.
Mumbai ranked 12th in investment, eighth in development: Mumbai remains the financial capital of India and hence it has benefited from the recent strength of India’s capital markets. Absorption has therefore been strong, driven by demand in co-working, manufacturing, and services companies. Another sector now drawing increasing foreign investment interest is retail, says the report.
Although steadily declining, Mumbai’s office vacancy rate (at around 17 percent) continues to be very high, and with a pipeline of incoming supply totalling about 40 percent of existing stock, fundamentals would appear to be negative. In reality, however, Mumbai continues to lag behind in term of Grade-A stock, meaning that any new supply is quickly taken up and that rental growth for those properties remains strong, says the report.
Bengaluru ranked 15th
in investment and 16th in development: The city is emerging as India’s centre for the business process outsourcing (BPO). The city’s reputation as an IT centre acted as a magnet for scores of foreign companies to set up outsourced-service facilities there. Early foreign investors in this sector bought income-producing assets in business parks in conjunction with local partners and scored some major successes. Some of these assets have now been earmarked for sale, in particular via India’s newly emerging REIT sector, which is expected to launch its first IPO in the first quarter of 2018.
Today, operators of BPO facilities in Bengaluru have reported rental growth of around 8 to 9 percent annually, together with healthy new tenant demand. Still, Bengaluru’s BPO story may now be tapering off as the emergence of automation and artificial intelligence technologies creates a long-term drag on demand for back-office and customer service functions globally.
New Delhi ranked 20th in investment list and 18th in development list. New Delhi remains unpopular with investors compared with other major Indian cities. This, according to the report is mainly due to an emphasis on development in the residential sector, which has recently been in a downtrend.
While this has created an opportunity to supply bridging finance, not many foreigners have pursued this option. As a group, northern India developers tend to be overleveraged and are often holding large portfolios of high-end housing, an asset class that is in oversupply. Many projects have been subject to long delays and some developers have acquired a poor reputation as a result, says the report.
But there is greater potential—the moment the [residential] markets turn, Delhi will be one of the first cities to start seeing a pickup, it notes.
In the office sector, Delhi missed its chance to grab a share of the surging growth seen in business parks located in the south. Although there has been some recent demand from IT companies, uptake overall has been slow, leaving office vacancies at an elevated 30 percent, according to JLL. As a result, Delhi has “been a bit on the back foot when it comes to absorption, but in general, rentals have been holding firm.” As in Mumbai, however, rents are higher and vacancies lower for prime properties in good locations.
Other key highlights of the report include: India is the only country to provide long-term sustainable 3 to 5 percent rental growth profile over a long period. Investors identified India among others as a destination where data centres are projected to provide 13 to 15 percent IRR.
While the supply of affordable homes increased in last 3 quarters, Investors remain cautious about affordable housing as an asset class. The key reason being availability of land at affordable price and not so far away from the cities, no single window approvals, and time overruns etc, says the report.
The co-working juggernaut is changing at a speed, not seen before.
The report also points out that India continues to attract strong flows of institutional and sovereign wealth type capital. Investment in India continues to be strategic in nature and offers a massive scale of the opportunity, a factor that makes it especially popular for funds deploying large amounts of capital, it notes.
Also, most international investors in India prefer commercial property, with cap rates currently averaging in the range of 8.5 percent to 8.75 percent.
India logistics sector has recently been the target of an investment boom, largely due to tax reforms.
Retail assets are now a popular play, with a number of platform or portfolio deals either already completed or in the works. The average appreciation in rentals has been anything between 8 to 10 percent per annum, higher as compared to office space, growing 5 to 7 percent.
The residential space continues to suffer including due to government reforms that include demonetisation campaign, GST and increased regulation of real estate development practices, says the report.
High-end residential oversupply is another ongoing problem, leading most foreign investors to shy away from the sector altogether.
Investors continue to remain bullish on retail and remain sanguine about the ability of conventional retail to fend off online challengers, says the report.
India remains the real bright spot for new REIT markets. There now seems a real prospect that Indian maiden REIT will be listed by the end of the first quarter of 2018.
The report notes that it feels like gold-rush in Indian logistics sector – USD 2.5 billion invested in last six months. Domestic warehousing stock in India currently equivalent to 1.5 percent of what is available in China and cap rates in the area of 9 to 10 percent.
The Emerging Trends report provides an outlook on Asia Pacific real estate investment and development trends, real estate finance and capital markets, and trends by property sector and metropolitan area. It is based on the opinions of internationally renowned real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.