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India real estate: An investment hotbed written by Yashwin Bangera | AVP - Research, Knight Frank India, published in ET Realty. May 5, 2017

Developed markets in the west have been progressively becoming more de-globalised as they experience increasing competition from the developing world. This is a clearly observable phenomenon as the world watches the UK fight to break ties with the European Union and President Trump seriously considers building a wall to keep Mexicans and other immigrants from claiming American jobs. These protectionist measures are purely symptomatic of a much broader economic malaise characterised by the fact that products and services from developed economies are continuously losing ground to those originating in competitive Asian economies.

 

As developed economies struggle to hold their ground in this post-Global Financial Crisis (GFC) structural shift, their Asian counterparts have been flourishing as economic realities slowly and surely direct global capital toward the more efficient and productive economies. Asia has thus been attracting increasing capital from investment banks, private equity funds and other financial institutions. Recognizing the structural shift in India&rsquos economic and political landscape, foreign capital has been vying to find avenues to invest in this country&rsquos potential growth.

 

Sweeping structural reforms such as the introduction of the Goods and Services Tax (GST) bill and the implementation of the Real Estate (Regulation and Development) Act, 2016 (RERA) showcase the political will of the current regime to promote the ease of doing business and increase transparency in the massive Indian real estate sector. The erstwhile cumbersome taxes that the GST will replace, created huge compliance complications and proved to be needless hindrances to the smooth functioning of trade and commerce. Similarly, RERA will help investors and end users navigate the traditionally dark annals of the real estate industry.

 

Massive infrastructure projects such as the Dedicated Freight Corridor (DFC) and the Delhi-Mumbai Industrial Corridor (DMIC) hold the promise of seamlessly connecting the thus far remote corners of the country to its existing and future manufacturing and distribution hubs, much like the coast-to-coast highways and inter-city railroads on which America built the foundation of its economy. The DFC and DMIC will involve the construction of almost 9,500 km of railroads criss-crossing the length and breadth of the country and the creation of eight investment regions that will easily prove to be among the largest infrastructure initiatives in the world today. Their creation would spawn the need for massive real estate development as factories, office spaces, residential units, malls and warehouses will need to come up to house the working populations of these cities. These infrastructure projects along with the Make in India and the Invest in India initiatives of the government will set the Indian economy on course to become a manufacturing powerhouse and enable it to attract global investments to fast-track its economic evolution.

 

Investment banks and private equity funds such as Blackstone, KKR, JP Morgan and Morgan Stanley, pension funds such as the Canada Pension Plan Investment Board and logistics moguls such as DP World, have already forayed into the commercial, residential and warehousing space in India. The opportunity and need for further development is immense, as just the city of New York has more office space than the entire country of India and according to various estimates, we currently face a shortfall of 18 million to 23 million housing units.

 

A few notable mentions of recently concluded deals and investment pledges made in the Indian real estate space include:

 

$1 billion investment by KKR Asset Finance Pvt. Ltd in residential projects in Bengaluru, Gurugram and Chennai

 

DP World&rsquos $1 billion pledge to tap into opportunities arising in the Indian logistics infrastructure space

 

GIC&rsquos nearly $2 billion acquisition of DLF&rsquos 40% stake in DLF Cybercity Developers, which owns and operates its leased commercial office spaces

 

Residential and commercial office spaces have been the staple for institutional equity entering the real estate market and recent forays into alternative real estate property types, such as warehousing, by players such as Embassy, CPPIB and DP World showcase the increasing appetite of institutional investors.

 

The Indian real estate sector attracted $5.7 billion of global capital flows in 2016 and just the first quarter of 2017 saw a massive $3.41 billion enter the market. Such aggressive capital commitments and the propagation of investment structures such as REITs and InvITs will greatly increase market depth and attract further investments in the Indian economy in times to come.

 

DISCLAIMER: The views expressed are solely of the author and ETRealty.com does not necessarily subscribe to it. ETRealty.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.