Tuesday, 16 August 2016

Global investors keen on Indian real estate

Global investors are looking at the Indian real estate sector with a great deal of enthusiasm, following the recent policy reforms, including Real Estate Regulatory Act (RERA), 100% FDI in construction and easing of REITs regulations, said Colin Dyer, CEO of US-based JLL Inc.

The reforms, according to Dyer, are helping property markets in India get more transparent, prompting institutional investors to increase their exposure in the country. "The penchant for development is clear from the efforts that the current government has made during the past two years or so. World's leading multilateral institutions and fund managers are taking a note of this and have bestowed their faith in India's progress," Dyer said in an exclusive interaction with ET.

"Currently, every metric, be it the Ease of Doing Business (by World Bank), Global Competitiveness Index (by World Economic Forum) or sovereign ratings (by S&P and Moody's), has shown India favorably, improving by a significant proportion."

He expects the private equity flows into India to remain strong in line with record levels touched in 2015 as the current developments with regard to RERA and REITs are major factors that could help improve India's transparency ranking further. India saw around $2 billion poured into realty sector by foreign private equity firms in 2015. "Given the speed with which reforms are happening, we expect Indian tier-I cities to progress from the 'semi-transparent markets' group to the 'transparent markets' group by 2018," Dyer said. In JLL's global real estate transparency (biennial) index for 2016, India's tier-I cities secured a rank of 36 amongst 109 countries, a major improvement from the 48th place it had secured in 2012.

Global investors, including Blackstone Group, Singapore's sovereign fund GIC, Canada Pension Plan Investment Board (CPPIB), Goldman Sachs and Qatar Investment Authority, have already been investing in Indian realty assets for the last few years. Apart from these, several new funds are also eyeing investment and alliance opportunities here.

Foreign investors' appetite for Indian real estate is on the rise, owing to relatively better economic growth and, therefore, returns.

The current developments relating to RERA and REITs are major factors that could help improve India's transparency ranking further during the next assessment year in 2018. Given the speed with which reforms are happening, we expect Indian tier-I cities to progress from the "semi-transparent markets" group to the "transparent markets" group by 2018.

Consumers are looking for fool-proof information and protection against builder malpractices, and the Real Estate Regulatory Authority would take care of both these concerns, according to Dyer. Bringing approval authorities, too, under the ambit of the regulator will help reduce delays on that front and will be helpful for investors remove uncertainties from project funding.

However, the issue of affordability for mass housing would still remain and in that regard, successful implementation of the 'housing for all by 2022' initiative of the Modi government would be crucial. It is definitely a gigantic task and political will is of utmost importance to ensure that success is achieved, he said.

India's residential sector currently has unsold inventory close to its peak levels of 39 months. However, there is definitely a trend of this getting gradually reduced over the next 18 months or so.

"By no means, this indicates lack of demand for houses. In most cases, fence sitters are holding back purchases either for want of the right products or due to lack of market confidence. Therefore, all stakeholders currently feel the need to adopt confidence-building measures, including the developer and government. We hope that with RERA in place, we would soon see confidence coming back," he said.

Dyer does not foresee further price rationalization in India, given that discounts are already offered by many developers, particularly those with high inventory, of 12-15%.

However, few developers with execution track record have been able to sell their inventory in record time despite a slow market otherwise, and therefore, price may not be the real reason for sluggish sales in many cases.

Boost Fund Flows

Heightened investor interest is good augury for real estate. We do need to step up funds flow into the sector. In the mature markets, real estate accounts for about half the annual growth in GDP. The corresponding share in India though remains hardly 9-10%, which clearly needs to rise. The way ahead is to boost transparency in approvals and clearances for real estate projects, so that project follow-through is time-bound and smooth.

Real estate does offer attractive returns on investment for pension and other long term funds.

Source: PropertyatNeoDevelopers.Wordpress.Com

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