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Industrial space to emerge as next organised property asset class in India: Report  |  March 13, 2018

Moneycontrol News

This year, higher trade flows and e-commerce are expected to continue driving demand for industrial and logistics space property in India, China, Hong Kong and Singapore, according to a report by Colliers Research.


While the industrial property market in India is still at a nascent stage, industrial space is likely to emerge as the next organised property asset class in the country, giving a decentralisation push, which should unlock land values in areas outside major cities and stimulate business activity, it said.


According to RCA, real estate investment transaction volume in India in 2017 reached USD 5.1 billion for all property assets (including land sites) and USD3.6 billion for completed buildings.


As per the report, transactions of office, retail, and industrial property were active, reaching USD 1.58 billion, USD 0.93 billion and USD 0.58 billion respectively in 2017. By city, real estate transaction volumes in Mumbai, Bangalore, and the National Capital Region (Delhi, Gurgaon, Noida and the surrounding area) stood at USD 0.49 billion, USD 0.44 billion and USD 0.45 billion, respectively, it said.


India is an integral part of the overall conception of ‘One Belt, One Road’ and investment interest from Chinese enterprises seems to have abated over the past year, the report noted.


For instance, one of the world’s leading engineering machinery manufacturers, China’s Sany Heavy Industry was reportedly planning to make an investment of USD 9.8 billion in India, while several other Chinese companies — Pacific Construction, China Fortune Land Development and Dalian Wanda were planning investments of more than USD 5.0 billion. Most of these plans appear to be still at the draft stage. Other developers such as Country Garden, which appeared to be optimistic about India a year or two ago appear to be going slowly in their decision-making processes, it said.


“While investors and developers have shown high demand for land sites to develop residential, office and industrial property, transactions of completed buildings were more than double the level of 2016. It can be perceived as a sign that India is at least starting to mature as an investment property market. We expect, the investment momentum to remain buoyant especially for commercial and industrial property sector,” says Surabhi Arora, Senior Associate Director, Research, Colliers International India.


As per Colliers APAC Research report, titled China’s ‘One Belt, One Road’- the dragon spreads its wings over Asia, despite the undoubted long-run growth potential of the project, Chinese capital is unlikely to be a driving force in the Indian market.


“The soft power push and financial support from China coupled with the aspirations of emerging economies towards faster economic growth and development is slated to increase the ease of doing business and is expected to boost the global business environment,” Rishav Vij, Director, Office Services (Pune) at Colliers International India.


Even if Chinese interest has lessened, India is far too important a market to ignore. India is Asia's and the world's second most populous country, with over 1.3 billion people and it is Asia's third largest economy after China and Japan (albeit still with very low GDP/capita). After a disappointing year in 2017, in which real GDP growth slipped from 7.9% to about 6.2%, most economists expect growth to rebound to 7.0- 7.5% in 2018, aided by robust consumption and higher government spending.


Expansion in the middle class, strong growth in the working population and competitive labour costs suggest that India can continue to grow at 6-7 per cent on average over the next decade, although inadequate infrastructure is a significant obstacle to growth. Short-term interest rates are high at about 6.5 per cent, and are unlikely to be cut further. On the contrary, Oxford Economics expects 50 basis points of tightening over 2018. However, with inflation likely to pick up over the next few years, real interest rates may actually fall.


India is a well-established democracy and the present government has pursued pro-business policies, which has boosted confidence among investors, the report added.