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January 25, 2018

From a series of high profile deals to regulatory changes that shaped the landscape, 2017 was a landmark year for India’s real estate market. But what lies ahead for the Asian powerhouse as we settle into the New Year?

High profile deals elevated the status of Indian real estate throughout the year: Singapore’s Sovereign Wealth Fund, GIC’s, acquired a stake in India’s DLF Cyber City for S$1.9 billion in August, while Canadian Pension Plan Investment Board invested US$500 million into industrial real estate developer, IndoSpace, in May to name two examples.

The market also went through three major reforms – from November’s 2016 demonetization, the implementation of the Real Estate and Development Act in May 2017, to GST replacing Service Tax in July 2017.

Investor-friendly
“All these events were significant,” says Ashutosh Limaye, JLL’s Head of Research in India, describing the reforms as “long overdue” and important in creating a more “respected, transparent, organized and sustainable industry in the long run.” He points to an increasing diversification into portfolio deals as a sign of increasing investor confidence.

In a further signal to investors, the Union government recently approved 100 percent foreign direct investment in industries like real estate broking and construction.

The move is a strong signal of the institutionalisation of real estate services in India, says Ramesh Nair, Country Head for JLL India. “The decision highlights the government’s determination to build an organised, structured and transparent market,” he says.

Healthy rental scene
Nair is also predicting that the reforms will result in an increased demand for commercial space from corporate occupiers across a range of sectors as resolutions are made after decisions were delayed post GST and demonetization. “This coupled with demand for co-working spaces will continue to push absorption of commercial offices this year,” he says.

The office corridors of Bengaluru, Gurgaon, Hyderabad and Pune are all expected to see rent appreciation in 2018, in the “range of six to eight percent (y-o-y), while select sub-markets such as suburbs of Mumbai, NH-8 in NCR and the SBDs of Chennai will also see similar rental movement,” according to Nair. Pune and Chennai surpassed their historic rental peaks in 2017 – and Hyderabad is set to follow suit in 2018.

Joint venture plays
Consolidation will be a defining feature of the market in 2018 according to Limaye. Smaller developers will become increasingly likely to enter joint ventures or joint developments and we could see more corporate take-overs as “small local companies struggle to manage rising costs of finance, premium Floor Area Rations and compliance coupled with inadequate credit history,” Limaye explains.

“Previously, the main source of financing for smaller companies was high net worth individuals who would typically lend or invest in cash, but a fall in demand has reduced liquidity,” says Limaye.

By playing to each their individual strengths, joint ventures will prove beneficial to both large and small developers, says Limaye. “Small and medium developers will continue to have a role to play in the secondary sector and in servicing smaller markets,” he says.

Click to read more about India’s real estate investment market.

 

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Ramesh Nair

Country Head, JLL India

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