Indian real estate has witnessed a prolonged slump for quite a few years now but the Government and industry stakeholders have pulled things back. The sector is coming out of the red in recent times with several pro-active Government measures working in its favor and the commercial real estate sector has been undergoing a major boom across major cities.
The residential real estate sector, while taking a longer period of time to recover, is being driven by higher sales figures and interest in the affordable housing space and mid-income category.
Key investment trends for Indian real estate
Investments in real estate in India have reportedly gone up by 9% to touch a whopping INR 43,780 crore in calendar year 2019. This has been spurred by higher inflow of funds from foreign investors as per studies. Close to 46% of overall investment inflows were garnered by office properties which generated almost Rs. 20,000 crore for CY2019. 8.7% growth in real estate investments was observed as compared to the year 2018 and this touched a whopping $6.2 billion.
Foreign funds contributed a sizable 78% of overall investments this year which is the highest such share ever. In 2020, close to $6.5 billion is expected in investments which work out to roughly Rs. 46,170 crore. Investors are expected to focus more on office and commercial assets under construction in 2020 along with stronger property demand in IT and ITeS driven markets like Pune, Bangalore and Hyderabad. There will be more opportunities for investors as a result. Investors should keep emphasizing more on commercial office asset acquisition over a period of 2-3 years, driven by healthy occupier demand and appreciation in rentals. Along with Delhi-NCR and Mumbai, Bangalore is one of the most popular markets for foreign investors.
Experts predict 52 million in average gross absorption annually across India’s top 7 cities, exceeding the levels over the last 5 years by approximately 12%. Commercial investments should increase over 2020 and 2021 with more funds aggregating assets for them being listed as REITs (Real Estate Investment Trusts). Residential real estate has contributed 9% of overall investments in CY2019 and investments should be on the softer side next year with the liquidity crisis steadily abating. Foreign funds are expected to get a firmer footing in the Indian real state space and foreign private equity players which includes sovereign and pension funds, are considering India for the long haul. Bangalore drew $655 million in investments or approximately Rs. 4,650 crore this year to come in at number two. Mumbai garnered 25% of investments as mentioned, due to its huge variety of options spanning various segments.
The key take-away
Commercial real estate has flourished for various reasons including higher supply and rates of absorption which in turn are aided by lower vacancies for Grade A office buildings and investments have also grown due to higher rentals. The office market has more transparency and timely delivery instances as compared to the residential space at times as per experts. The residential segment, while experiencing growth in investments this year, will continue to recover slowly but steadily all throughout 2020.
The NBFC crisis and ongoing liquidity crunch will take some more time to fade away as per experts. However, Government measures like the newly announced stress fund and attractive rates of interest on home loans should keep the momentum going in the affordable and mid-income housing segments. These will be the bread and butter segments for most Indian developers in future years as per experts. This explains changing market strategies for some of the country’s top real estate players who are now foraying into affordable housing and mid-range projects, something inconceivable earlier.
Indian real estate should keep flourishing in a more transparent and healthy environment driven by accountability and proper monitoring. Measures like GST and RERA have only made things more favorable for investors, thereby leading to higher funds being pumped into the sector.