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For most non-resident Indians (NRIs), one of the first things to tick off the to-do list is buying a dream home. For some it is an investment, but for many it is the reward of a lifetime of hard work. Either way, investing in property has always stood the test of time.
The Indian real estate market is one of the fastest growing in the world. According to India Brand Equity Foundation — a trust set up by the Indian government's Department of Commerce, Ministry of Commerce and Industry — it is estimated to reach $180 billion (Dh661 billion) by 2020, increasing at a compound annual growth rate of 11.2 per cent until the end of the decade.
With a strong and stable central government under Prime Minister Narendra Modi, there is renewed confidence in investors. Proposed changes in foreign direct investment norms have helped strengthen market sentiment. Campaigns such as Make in India — a programme designed to transform the country into a global manufacturing hub — are fuelling capital in flows, thereby pushing up the demand for commercial real estate, says Anuj Puri, Chairman and Country Head of JLL India.
''The real estate sector is looking a lot healthier,'' says Manoj Asrani, Vice-President of Sales and Marketing at real estate company JP Infra Mumbai. ''There's renewed optimism within the wider economy, which, in turn, is pushing new property projects.
''As a developer we are seeing a shift in the NRI markets, where salaried individuals are taking the risk of heavier equated monthly instalments as they expect the economy to grow.
''Trust in the new government has brought new hope of reforms. There are discussions about new infrastructure, land regulation bill, setting up of a real estate regulatory agency and other aspects to improve the real estate industry — all signs of assured growth.''
Prices have not increased in the past few months, another compelling reason analysts believe it is the right time to invest.
''The market is becoming positive, which will soon reflect in an increase in property prices that will bring immediate returns to the people who would be investing right now,'' says Vikas Bhasin, MD, Saya Homes. ''Also, currently every end user can expect a better negotiated deal, which may not be possible after a few months with the upsurge in demand.''
Positive PE growth
Private equity (PE) investments in Indian property companies rose 85 per cent in the first three months of the year, according to a report from Cushman and Wakefield. PE has emerged as an important alternative source to meet the funding requirements of the sector. The residential segment attracts 53 per cent of these funds, with the rest being pumped into the office sector, the report says.
The increase in PE is linked to improved market sentiment and higher investment in residential and commercial office assets, which increased by 158 per cent and 68 per cent respectively compared to the first quarter of last year, the report says.
Sanjay Dutt, Executive Managing Director — South Asia at Cushman and Wakefield, says PE funds are likely to increase their investments in the next few years due to improving macroeconomic conditions, enabling policy environment, attractive valuations and increasing capital requirements of the Indian real estate sector.
''PE funds are a driving force for entrepreneurs and of course the greater the risk the greater the reward necessary for investor decision-making to occur,'' says Asrani. ''The increased PE funds have really got a good inflow of money into this sector [with] new developments taking shape. So vendors have one more avenue of sale opened up.
''Plus the developer load has gone out, [so] the market has seen good growth and a good return for the investor.''
Commercial is a catch
The Indian real estate market is now in a different state of maturity. Things have changed in the past 12 months. Today, there isn't a corporation in the world that doesn't have India in its strategic plan, says Stuart Roberts, CEO for Asia-Pacific at property advisory firm DTZ.
This is reflected in the growth of leasing in commercial space in the country. Last year nearly 36 million sq ft of office space was leased, outperforming industry forecast of 30 million sq ft.
DTZ research shows that by next year, this figure will be closer to 45 million. Around $3.4 billion has been invested in the commercial property sector since 2011, compared to $1.1 billion between 2008 and 2010.
Retail, hospitality and commercial real estate are growing significantly, according to a study by Knight Frank. So it is a good time for NRIs to invest in commercial property. Mumbai is the best city for investment, with returns of 12-19 per cent likely in the next five years, followed by Bengaluru and Delhi-National Capital Region.
''Commercial property has been doing fairly well,'' says Bhasin. ''With India becoming a centre for world trade, the number of multinational companies on the lookout for big commercial spaces has been increasing. Plus with organic growth in business houses, the demand for commercial space has been growing stronger.''
Puri also gives the thumbs up to investing in commercial instead of residential property. Commercial space requires much larger investment than residential assets, which is why it has traditionally been perceived as the domain of larger investors.
However, that could change soon with Real Estate Investment Trusts coming into play, says Puri, as it would allow many retail investors into the commercial real estate market.
But NRIs should also tread carefully, says A. Sridharan, Managing Director of Covai Property Centre. ''To expect any miracles in the real estate sector within one year of Modi's rule may not be correct,'' he says.
''The government has initiated a number of steps and their effect [on the economy] will take time.
''Consequently, we hope to see the effect in the real estate sector by the end of this year.''
Source: Sanaya Pavri, Special to Property Weekly