Indian real estate 'ready to take off'
The Narendra Modi government's clean-up of the real estate market shows signs of success and the industry in India is "ready to take off", according to the Economist.
Look no further to see signs of revival in Indian real estate. Construction cranes dot the skyline of Delhi, Hyderabad and other cities. In Bandra, a posh suburb of Mumbai, more than 100 buildings are being redeveloped.
Across the country, the number of new projects reached an all-time high in 2012. Presales by major developers are growing at double-digit rates. Behind the bustle of the Indian real estate industry is a series of converging conditions. These include demand from a growing well-off population, inadequate supply and the deterioration of existing buildings in harsh climatic conditions.
The structure of the real estate market has also changed a lot. Accordingly, the efforts of Prime Minister Narendra Modi's administration to clean up after the real estate market crash in the mid-2010s appear to have paid off.
Office and residential buildings in Mumbai, India, June 19, 2019. Photo: Reuters
Before the crisis, India's real estate industry was booming with small-scale, flashy developers. But along with that come questions about bribery fees, unstandardized lending by banks and complicated land collection tricks through family members of company leaders.
Subsequent lawsuits showed that those doubts were well-founded. The consequences of corruption are that projects are delayed, home delivery is delayed for many years and market demand gradually cools.
Therefore, the Modi government has stepped in to resolve the crisis. Among the changes introduced by the government in 2016 was a requirement for developers to pay above-market interest rates on customers' apartment deposits if projects miss delivery deadlines. The purpose of the policy is to create motivation for investors to complete on schedule.
Transferring customers' deposits to invest in other projects is also prohibited. Financial institutions are pressured to be more serious about lending and supervision. The cleaning of the market has not stopped there. In the state of Maharashtra, where Mumbai is located, officials recorded 308 projects involving 60 companies that are in some degree of bankruptcy. However, bankruptcy cases are gradually becoming fewer.
After a period of stagnation, developers have a legitimate claim to completing projects that have seen valuations skyrocket over the past three years. For example, Delhi Land & Finance's value increased from $5.1 billion to $15.8 billion, Godrej Properties from $3 billion to $5.5 billion, and Oberoi Realty from $2 billion to $5 billion.
According to Ambar Maheshwari, CEO of investment firm Indiabulls Asset Management, the commercial real estate market has seen significant institutional capital inflows through the public markets in the past four years.
Capital also poured into the real estate market through private credit. "We have seen a lot of private lenders entering the market over the past few years. Quite a lot of money is going into real estate," as Maheshwari says. For example, in August, Reuters reported that asset manager Edelweiss Alternatives had invested $3.4 billion in private credit and sought to launch its next real estate credit fund.
According to real estate site Pere , CapitaLand Investment (CLI) from Singapore plans to increase its presence in India. Sanjeev Dasgupta, CEO CLI India, said the company aims to increase its real estate assets under management from $2.3 billion to $5.8 billion in the next three years.
"We're certainly on track to hit that number. But what we hope to do is based on the positive market outlook for India on many different fronts, we really want to accelerate the pace." that growth further if possible," Dasgupta said.
While CLI has been operating in India for 30 years, the country is also attracting new faces. Gaw Capital Partners (Hong Kong) is looking to open an office in India after hiring Nitin Gupta as CEO of this market in 2022.
"India attracts more interest from investors looking to adopt a China+1 strategy or even pivot away from mainland China given the deteriorating economic outlook in the near future," Benjamin Chow , Head of Asia real estate research department of financial services company MSCI (USA), said.
Confidence in the market is also returning. Data tracked by bank Morgan Stanley and consulting firm JLL Research indicates that purchases in the most recent quarter were 20% higher than the year-ago average. Activity was particularly strong in cities such as Bangalore, Hyderabad, Mumbai and Pune.
According to Mr. Chow, like many other markets around the world, real estate transaction activities in India have also been hindered in the past few years due to the high interest rate environment. Trading volumes have plummeted from a total of $6.4 billion in 2020 to $2.5 billion in 2023 year-to-date, according to MSCI.
While trading volumes remain relatively low compared to pre-2020 levels, the market saw a resurgence in investment activity in the second quarter as interest rates stabilized, according to Chow. According to MSCI, capital inflows increased from 321 million USD in the first quarter to 1.2 billion USD in the second quarter.
A housing market downturn can have a broader impact on a country's economy, which is extremely evident in China right now. The opposite is also true if you look at India.
The current healthy housing market helps explain why the country's growth remains strong and the stock market registers large gains, despite declines in exports and key industries, especially technology. Construction in India employs more than 50 million people and accounts for 7% of GDP.
A report by consultant Knight Frank India in conjunction with the National Real Estate Development Council (Naredco) said the country's real estate market value reached 477 billion USD and is forecast to increase to 5,800 billion USD by 2047. The industry's contribution to GDP also increased from 7.3% to 15.5% in the same period.
This year, private capital investment in real estate is forecast to reach 5.6 billion USD, up 5.3% over the same period in 2022. Private capital investment will increase to 54.3 billion USD in 2047, an increase grow 9.5% per year in the period 2023 - 2047.
"Significant growth in the Indian economy by 2047 will be driven by real estate. Multi-dimensional economic expansion will drive demand for all asset classes - residential, commercial, warehousing , industry", said Rajan Bandelkar, Chairman, Naredco.
The real estate industry is a major customer of cement, steel, glass, household appliances, along with credit. Past problems may have left the industry negatively affected. Now, like the towers in Mumbai, it is on the rise, according to the Economist .
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