By: Anshuman Magazine, CMD, CBRE South Asia
Track2Realty: The completion of several large transactions—including a couple of deals worth overUS$ 500 million each—pushed up the total real estate investment volume in the Asia Pacific region in the June–September period to US$ 35 billion, a quarter-on-quarter increase of about 40% (as per the CBRE APAC Capital Markets MarketView Q3 2014 report).
By the latest estimate of Oxford Economics, the year-on-year economic growth of Asia Pacific in 2014 stands at approximately 4.4%, slightly up from its June forecast of 4.3%. The 2014 real estate investment forecast for India, meanwhile, also indicate an improvement due to government stimulus efforts.
Institutional investments in India’s real estate sector
Institutional investments and capital market transactions in the India realty market during the first nine months of the year stood at approximately US$ 4.5 billion. Out of this, land and development stage transactions attracted the highest quantum of investments (nearly 60%) from domestic as well as foreign entities during the period, indicating perhaps a significant amount of investment in Greenfield andBrownfield development.The commercial office segment, meanwhile, attracted more than 20% of this total investment amount during the period in question.
In terms of investment locations, Mumbai’s realty market attracted the highest investment, followed by Delhi and Bangalore. In terms of total real estate investments made in Mumbai and Delhi during the period, land and development stage transactions spelt nearly 70% and more than 60% of total realty investments in the cities, respectively. In the case of Bangalore, more than 50% of total investments during the period were attracted by the commercial office segment.
Office space transactions, in fact, increased by about 20% year-on-year in the first nine months, with more large-scale space leases and higher lease volumes on an average over the previous year across leading cities in India.The periodsaw significant investor interest in completed and well-leased core commercial office assets and IT parks across key cities. Investment highlights during 9M FY2014 also included GIC announcing the formation of a joint venture with Bangalore-based development firm, Brigade Enterprises, where the two firms plan to invest approximately US$ 250 million in residential and mixed-use development in cities across southern India.
Government stimulus spurs capital markets in India
While investor interest in India and Southeast Asia steadily increased over the first nine months of the year, this interest is yet to translate into an increase in investment turnover. India, recorded a sizeable uptick in business confidence following the coming of a new government earlier in the year. The new government is expected to implement policies to attract Foreign Direct Investment (FDI) and develop the Real Estate Investment Trust (REIT) market.
FDI alone saw a dramatic 34% y-o-y increasein India during Q1 2014–15 as multi-national firms reacted positively to the new government’s reform agenda.On the regulatory front, India’srealty sector saw two major developments—the Securities and Exchange Board of India’s(SEBI’s) notification of final guidelines on the setting up of REITs and Infrastructure Investment Trusts (InvITs), and the revision in FDI norms for the construction sector.
Funding avenues
The lending environment remained mixed in the geography during the first nine months of the year, with India having to address challenges such as inflationary pressures (which has since begun to ease off gradually). Capital markets in India saw the growth of non-banking lending activity as property firms continued to find it difficult to obtain project financing from commercial banks.
At a time when the country’s realty sector has been struggling for alternate avenues of funding—other than traditional banks and financial institutions—private players have been sourcing institutional capital. At such a juncture, permitting REITs and InvITs is expected to act as a key enabler for capital markets in the country, and provide investors with exit options.
The outlook for capital markets in India’s realty sector continues to look positive and transaction activity is expected to improve further in forthcoming quarters.September 2014 saw global credit rating agency, Standard and Poor, raising the outlook for India from ‘negative’ to ‘stable’, with the rationale that the country’s new government mandate and improved political situation offered a more positive environment for much-needed reforms.
