Are you thinking of investing in Indian real estate in 2020? Well, you’re certainly on the right track since Government measures and sustained market recovery have once again made real estate an attractive asset class for investors. Yet, where should you invest your money? Which are the avenues where you can expect to reap greater rewards on your investment?
This is where a study of the current market trends will come in handy. Ready and under-construction Grade-A office spaces and other commercial real estate spaces continue to draw investors in large numbers throughout India and there are other growing sectors like warehousing, co-living, student housing and co-working that will become more attractive in times to come.
Major market trends worth noting
2019 witnessed a continuing boom in commercial real estate and India’s first REIT (Real Estate Investment Trust) was launched in April, 2019 as Embassy Office Parks. This has opened up a new investment option for retail investors in India with more REITs on the anvil. Residential real estate is not completely out of the water yet in the country although Government measures, improving buyer sentiments and the emphasis on affordable and mid-income housing backed by a slew of sops and lower interest rates are expected to revive demand this year.
Affordable housing remained strong in 2019 and the trend is expected to continue throughout 2020 as well. First-time homebuyers are responding well to sops including lower GST rates of 1% on under-construction affordable units, additional tax deductions up to Rs. 3.5 lakh annually on interest paid on loans for housing units priced below Rs. 45 lakh and PMAY incentives. In 2020, the stress fund or alternative investment fund (AIF) announced by the Government should play a big role in reviving residential real estate. This fund of Rs. 25,000 crore will enable faster completion of stalled projects in the mid-income and affordable segments.
Experts feel that growth of the residential real estate segment this year will majorly depend on rapid implementation of Government measures and other sops which have been announced along with the stress fund. Timely implementation will jack up sales figures across segments with a major chunk of growth expected to be witnessed in H2 2020. Branded, reputed and organized real estate players will keep increasing their market share and sales volumes alike in 2020.
IBC driven resolutions will be witnessed for several big real estate companies, thereby scaling up positive buying sentiments while reviving major housing markets like the MMR (Mumbai Metropolitan Region) and NCR (National Capital Region) in terms of real estate demand.
Key avenues for real estate investments in 2020
Residential real estate investments
Of course, residential real estate will continue to be an attractive investment in 2020, thanks to the Government’s cut in GST rates and home loan interest rates which are now at their lowest levels. As an investor, you will undoubtedly be buoyed by the Government’s decision to scale up the threshold for tax deduction on rental income to Rs. 2.4 lakh from Rs. 1.8 lakh previously.
Additionally, self-occupied second homes will be free from notional assumption of rental income. These are major boosts for encouraging second home investments in the country along with the one-time capital gains exemption up to Rs. 2 crore for two properties. If you wish to invest in a second home for earning rental income or simply for personal use, 2020 could be the best time to do so.
Emerging Real Estate Segments
There will be swifter growth of the co-working, co-living and student housing segments in 2020 as forecasted by experts. These represent fascinating investment opportunities since they gained more traction last year, drawing steady investments to the tune of approximately $210 million as per reports. Investors are now eyeing the co-working space for earning good returns as opposed to smaller office spaces. There is a trend where bigger floor plates are being purchased by investors for handing over to co-working brands with regard to their management. This is being done on a revenue-sharing model with returns coming in at approximately 13-14% even.
The co-working spaces concept basically has groups of independent professionals and even small or large businesses sharing workspaces. At a time when business cycles have considerably lowered and organizations need continual innovation for thriving in a hotly competitive environment, co-working spaces are fresh and creative environments that fit the bill. Along with companies, expats, business nomads and even those traveling to another city/country for a limited duration are those who choose co-working spaces on the plug-and-play model. Another thing to keep in mind is the increasing volume of freelance workers in the gig economy of India who are backing corporates and other companies with specialized outsourcing and services across designing, consulting, advisory and more.
Co-working spaces are also ideal for start-ups since they help in avoiding high fixed rental costs of office spaces along with additional regular operational issues. They offer more flexibility and enables new businesses to occupy modern working zones on a per-seat basis with flexibility to increase/lower seats or even completely exit the office.
Student housing is another segment worth investing in since it has lower levels of risks and huge potential for the future. This segment offers ample opportunities to developers and investors alike for getting steady rental income and high returns. There are several companies who have forayed into the student housing category since there is sizable demand but comparatively lower supply. Some of the companies who have forayed into student housing in India include Oxfordcaps which has premium accommodation for students across Delhi-NCR and is headquartered at Singapore, Your Space and Stanza Living among others. Why this is a good avenue to invest is because of the demand levels. As per estimates, the current demand for student accommodation (purpose-built) stands at a whopping 8 million beds in India and counting! This figure should only increase at approximately 7-8% annually, reaching 13-14 million beds by the year 2025 as per studies.
A majority of demand in the student housing space is presently taken care of by unorganized players which include private hostels, PG accommodation and other rental accommodation offerings. These properties are mostly below the expectations of contemporary students in India. The gap between demand and supply in this category along with the prospects of earning higher returns has drawn several investors in 2019 and the story should be no different in 2020 as well. There is strong potential in developing high-quality student accommodation at strategic locations throughout the country. Industry experts estimate that there is scope of delivering 6 million bed spaces on land near major universities while another 2 million can be achieved through adding or renovating on-campus hostels.
Bangalore is a major hub for student housing since it has the highest concentration of colleges/universities in the country followed by cities like Pune, Mumbai, Hyderabad and Delhi-NCR. The present number of students enrolled in professional courses is expected to grow considerably from 6,60,000 as per estimates. Out of this tally close to 40-50% need accommodation and just 10% is possibly covered by on-campus facilities.
Co-living is another segment which is ripe for garnering more investments in 2020. The population of millennials in the country is estimated at 440 million people at present. There is growing demand for co-living accommodation in major cities like Pune, Bangalore and Gurgaon and Noida in the NCR (National Capital Region). This segment has already caught the attention of real estate investors as an opportunity for portfolio diversification with lower risks. Demand should increase to 5.7 million beds in the segment from 4.19 million as per studies and private bed share may increase to 30% from 15% in terms of overall demand as per reports. Millennials prefer co-living accommodation more due to hassle-free sharing of less utilized zones like kitchens, living spaces and balconies for more economic viability and also for the scope to be part of a thriving, creative and fun professional community.
This trend is creating a more organized market for co-living rentals in major cities like Bangalore, Pune and NCR just like co-working spaces in the commercial segment. Co-living operators usually take over a property on a long-term lease contract from the owner and then bear the costs of makeovers, amenities and technology platforms to be used by residents. They charge occupants on a per bed basis for property management thereafter. Several leading real estate players are already eyeing this segment for the future.
Warehousing and logistics
The warehousing and industrial sector drew investments of a whopping Rs. 254 billion from 2017 onwards and there is increasing demand for bigger facilities from third-party logistics players and e-commerce companies alike. This has naturally drawn the attention of real estate investors and inflows should reach a staggering Rs. 495 billion by the year 2021 as per reports with new investors and market players.
Rs. 22,100 crore of institutional capital has already been pumped into the warehousing segment courtesy organized players. Demand for big warehousing spaces will grow steadily over 2020 and 2021 with several occupiers shifting from smaller warehouses to bigger facilities for improved consolidation and higher traction. The supply levels are lower in comparison to demand and this presents an attractive opportunity for investors. With more organizations streamlining and consolidating networks for logistics, unorganized or smaller players will be selling assets to bigger companies or may consolidate as well. There will be a major industry transformation over the next 4-5 years as per experts. The warehousing sector is witnessing a global change as well.
From offering storage space for goods to value-additions like small scale production, packaging, automation, cross docking and algorithm based demand forecasting, warehouses are steadily evolving throughout the country and beyond. They are also doubling up as centers of distribution for several companies. Warehousing will continue to be in high demand throughout 2020 irrespective of REITs coming into the space due to the huge push towards steady logistics infrastructure in India. The rationalization of GST and e-commerce growth will be fuelling demand for large warehousing facilities across the country and with infrastructure status being given to the logistics sector, there will be higher investments as well.
Investments on outskirts or peripheral areas of major metro cities and Tier-2 cities will be great options since these zones are ideal for setting up major warehousing and logistics hubs while enabling good connectivity at the same time.
These are some of the most lucrative avenues for real estate investments in 2020 apart from incoming REITs which are great ways to start investing in commercial real estate. The boom in demand for office space and other commercial realty assets will continue in 2020 as well and this will still remain the predominant asset class for a majority of investors as per industry experts.