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Real Estate Investment: Forecast – Cloudy with Hints of Sunshine

The policies are bringing in higher levels of transparency and accountability, financial discipline, focus and efficiency into the real industry which could only be dreamed of in the past. The industry, which was notorious for unfair deals and little trust among people, has no option now but to be honest. Investors, who are finding the market safer, are largely looking at commercial segment since the residential segment is passing through a dull phase

The real estate industry is changing its profile; or say, it is passing through a phase of refinement. On the bedrock of some of the major changes on the policy front, the real estate is set for radical growth, a healthy growth like other industries. The radical changes in the direct tax regime, bringing in place a regulatory system, a mechanism that can prevent benami transactions and the time-bound programme that can trigger home construction would render the industry a boost.

The ancient Chinese curse ‘may you live in interesting times’ certainly has a lot of pertinence to Indian real estate. These are without doubt, ‘interesting’ times for the sector, which has transformed significantly over the last decade. The pace of transformation has been accelerated further by the Central Government’s reformative steps aimed at ushering in ‘Acche Din’ to the realty sector, Anarock Property Consultants, a leading Mumbai based property service consultants, observes.

A new regulatory environment is being created with the implementation of several disruptive policies. The Real Estate (Regulation and Development) Act, 2016 (RERA), Goods and Services Tax (GST), Real Estate Investment Trusts (REITs), the Benami Transactions (Prohibition) Amendment Act, 2016 and the Pradhan Mantri Awas Yojana (PMAY), among others, have happened over the last four years, it says.

Its studies point out the fact that these policies are bringing in higher levels of transparency and accountability, financial discipline, focus and efficiency into the industry which could only be dreamed of in the past.

Moreover, these reforms have opened new avenues for growth. Today, these are more than sufficient indicators to vouchsafe the country’s growth story and its positive repercussions on the Indian real estate sector. Anarock estimates that the Indian real estate sector is expected to reach a size of $ 180 billion by 2020 and is poised to grow at 30 percent over the next decade. According to the Indian Brand Equity Foundation (IBEF), the number of Indians living in urban areas is slated to increase from 434 million in 2015 to 600 million by 2031. The housing sector alone is expected to contribute around 11% to India’s GDP by 2020.

Real Estate attracts roughly seven per cent of the total foreign direct investment (FDI) coming into India in the form of equity. Most of the investments are in the commercial office real estate. The increasing share of real estate in the country’s GDP will be supported by increased industrial activities, improving income levels and rapid urbanization across cities, Anarock points out in its media note. In terms of FDI equity inflows, real estate is the fourth-largest sector in the country. The total FDI inflows in the sector were $ 24.67 billion from April 2000 to December 2017 that is seven per cent of the total FDI equity coming into the country during this period.

The numbers reported in the first quarter of the current financial year looked positive with the overall PE funding growth by 15-17% over the previous year. However, the steady fall in appreciation and persistent gloom in the residential property market caused PE investors to shift their focus towards other asset classes.

Reasons why the FDIs are mostly coming in commercial real estate are the rapid employment generation as the economy is growing and the near possibility of the first REIT listings, Grade A office projects, IT parks. Even logistics centers are currently yielding the levels of returns on investment that previously made the residential asset class so attractive to investors.

The average investment per deal, particularly in commercial real estate, has increased by almost 3-4 times to nearly the average investment per deal 6-7 years ago. The appetite of institutional investors – including private equity, sovereign wealth and pension funds – is visibly increasing for matured, yield-producing commercial assets with established rentals and occupiers. The rise of institutional investors in Indian real estate space will significantly improve levels of governance in the real estate sector and make it far more structured and transparent.

Consolidation has also become a prominent trend in the Indian real estate sector. Anarock study showed some of the top deals in the first half of 2018 were worth over $1.5 billion comprising of investors like Blackstone, Canada Pension Plan, Ascendas, GIC and India-based HDFC venture.

Investor Investee City Deal Value (USD Mn)
Blackstone Indiabulls Real Estate Mumbai 730
Canada Pension Plan Investment Board Phoenix Mills Bengaluru 142
Ascendas Phoenix Group Mumbai 197
GIC Godrej Properties Mumbai 149
HDFC Venture ATS Group Noida 300

(Source: ANAROCK Research)

• Deals worth over $1.5 billion in H1 2018
• ‘Housing for All by 2022’ will attract US$ 1.3 trillion into residential by 2025
• First REIT listings a sure-fire draw for liquidity infusions into office assets

The increasing share of real estate in the country’s GDP will be supported by increased industrial activities, improving income levels and rapid urbanization across cities, Anarock points out in its media note.



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