Investor sentiment in a few emerging markets, including India and Indonesia, remains cautious as investors gauge the recent or expected policy changes. However, these changes and the ambitious development plans taking shape in the Indian market will be the key engine of opportunity in 2018 and beyond, says Colliers Research.
According to it, in line with Q3 2017, the last quarter of the year (Q4 2017) witnessed all stakeholders trying to align their activities with the new market structure resulting from the implementation of the Real Estate Regulatory Act (RERA), Goods and Services Tax (GST) and demonetisation. The business activity remained concentrated towards specific segments as majority of the developers, financial institutions as well as investors continued to adopt a wait-and-watch approach before ramping up the investment expansion plans.
However, a sense of cautious optimism continues to underline the current turbulence in the market, largely driven by new regulatory structure, which is expected to drive investor and end-user confidence by accentuating factors such as accountability and transparency.
With new supply likely to be restricted in 2018, the rise in housing demand and sales would lead to a reduction in unsold stock. The residential market is likely to see a major consolidation as many developers are expected to sell their assets to complete ongoing projects and cut debt.
On the commercial market front, demand for pre-leased office space continued to drive investment activity bolstered by record leasing activity. The residential space also gained traction, especially across the affordable housing space, driven by government’s push to promote the category to achieve its ‘Housing for All by 2022’ mission. Additionally, the last mile funding for near completion projects continues to be the flavour of the market as developers look to ensure timely project deliveries to avoid penalties. Investment flow in the organised retail sector remained slow, while warehousing sector continued to draw interest from investors. The recent investments by Ascendas to acquire six warehouses from Arshiya and CPPIB investment in Indospace are testimony of increased interest in the logistics sector.
“With the economy currently adjusting to substantial regulatory restructuring over the past eighteen months, the market is expected to reflect fair industry indicators. However, the market is expected to witness an uptick in the long run, which in turn is envisaged to drive fund flow,” says Gagan Randev, National Director, Capital Markets and Investment Services, Colliers International India.
The residential sector is expected to make a comeback as retail investors look to re-enter the market, while pre-leased investment grade office and retail space will continue to dominate investments. Apart from this, the platform level transactions are expected to re-emerge as international developers and funds are increasingly looking to collaborate with reputable domestic names with development expertise and delivery track record. There is also strong interest in alternative segments such as warehousing and hospitality.
“The overall sentiment remains positive as investment activities in office and industrial sectors have increased. Driven by policy initiatives, the affordable residential sector has achieved ground acceptance among developers and investors and started gaining prominence. Moving forward, the India market outlook in 2018 looks optimistic in light of robust demand for Grade A commercial properties. Investors will continue to look for pre-leased assets with value-add potential. We believe the Grade A office, modern warehousing and affordable housing will continue to be the focus sectors for 2018 for both local and foreign investors,” says Surabhi Arora, Senior Associate Director, Research, Colliers International India.