Noida: Since the global financial crisis, aggregate outflows of capital from Asia to property markets in the rest of the world have risen sharply to reach $58.9 billion in 2016, while inflows have stagnated at under 30% of this level. This heavy investment outside Asia has been led by mainland Chinese groups, which represented 43% of Asia-to-global flows last year, and has been focused on the US.
Despite firm near-term US economic prospects, “we expect slower RMB depreciation and political pressures to cause Chinese investors to shift towards Asian markets from 2017. The economic environment in Asia Pacific looks mostly healthy as we move into 2017. India is achieving real GDP growth of 7% y-o-y, and a firm investment demand,” Colliers International said on Wednesday.
Colliers International believes that it may be fantasy to expect Asian property capital flows to reverse in 2017: outflows should slow, but inflows may only rise slowly. Asian property investors may see particular investment opportunities in China, Hong Kong, Singapore and India over the medium term.
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“The strong economy with above 7% growth in the coming year, controlled inflation close to 4% on a sustained basis, and proactive policy initiatives by the Government are likely to improve India’s attractiveness to investors. With a number of Chinese investors scouting for opportunities in the Indian market, the capital flow in real estate is likely to increase in the coming years,” said Surabhi Arora, Senior Associate Director, Research at Colliers International India.
The following key opportunities exist in the Indian realty market:
Office market: Demand for office space should remain strong for the next few years in the technology-driven markets like Hyderabad, Bengaluru, Pune and Chennai. These are markets where investors should look for investing in quality buildings; however, as most of the inventory is strata-sold and there is a limited availability of Grade A commercial assets, investors may look to invest at the land stage and build the Grade A assets along with the developer.
Industrial Property market: The industrial property only accounts for 9% of total property transaction volumes in Asia and there is ample scope for this proportion to increase. While the economic growth in Hong Kong has been accelerating, the growth in the Singapore economy had picked up pace in late 2016. Overall, Colliers International is cautiously positive about prospects for industrial property in Asia in 2017. However, the threat of high tariffs on Asian imports by the incoming US administration carries risks.
“Over the medium term, the flagship programme of the Modi government to boost India’s image as a global manufacturing hub, combined with the opening-up or relaxation of barriers to foreign direct investment in several sectors, should create new opportunities in industrial property. Recently, the government has identified five main industrial corridors that are designed to be the epicentre of its industrialisation strategy,” says Colliers International, adding that the government is planning to create 100 “smart cities” along these corridors to support industrial development.
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Residential Market: In India, in the near term, market confidence has been adversely impacted by demonetisation. However, mid-segment projects with realistic pricing are enjoying fair success in both the primary and the secondary markets. The Indian government granted infrastructure status to affordable housing in the Union Budget 2016-17. Consequently, this property market segment is eligible for various tax incentives and cheap funding. To give a demand side push, the government has also provided interest rate subsidies to the buyers. Investors may look to enter in this segment to reap an early mover advantage. The investors can also look for bulk buying in under-construction residential projects in cities such as Mumbai and Delhi- NCR. These cities have high-unsold inventory in under-construction projects, so investors can receive attractive discounts. Looking ahead, new regulations and probable further cuts in interest rates should allow sentiment to pick up steadily over 2017.