Recent reforms by the Modi government have resulted in short-term turmoil in the nation's real estate market, but may be considered as beneficial for the economy in the long run.
Recent reforms by the Modi government, e.g. implementation of the Goods and Services Tax (GST), the Real Estate Regulation and Development Act (RERA) and various checks on cash transactions, have resulted in short-term turmoil in the nation’s real estate market, but may be considered as beneficial for the economy in the long run, says Colliers Research.
Indeed, the impact is already visible, and India has witnessed an improvement in various international ratings. For example, Moody’s has just upgraded India’s sovereign credit rating for the first time in 14 years, while India’s ranking in the World Bank’s ‘Ease of doing business’ index has jumped to 100 in 2017 from 130 in 2016. India has seen a noteworthy jump of 85% in property investments in the first nine month of 2017 as compared to the same period last year. The deal volume is recorded at $2.6 billion in the first nine months of 2017, in comparison to 1.4 billion last year.
More importantly, the Indian economy, as measured by growth in gross domestic product (GDP), accelerated by 6.3% in calendar Q3 2017. This is an improvement from 5.7% in Q2 and suggests that the economy is recovering from the impact of demonetisation in 2016. Most economic forecasters predict average annual GDP growth of over 7% till 2020, which will make India one of the fastest-growing economies in the world, says a research report by Colliers Research.
The government’s thrust towards ‘Make in India’ and improvement in infrastructure spending should support demand in the industrial property sector in the coming years. “We expect Industrial space to emerge as the next organised property asset class in India, giving a decentralisation push, which should unlock land values in areas outside major cities and stimulate business activity. We, thus recommend that developers take account of the ample opportunities outside the traditional asset classes (offices and prime residential) and make room in their portfolios for other categories such as industrial, warehousing and affordable housing, in order to gain an early mover advantage,” it says.
“India is in a sweet spot as a destination for foreign investments. While there has always been very keen interest for Grade ‘A’ Commercial assets where cap rates continue to become increasingly aggressive, there is huge demand on the warehousing and logistics space as well as on the affordable housing side. With land prices correcting for residential and RERA giving confidence to investors, foreign investors are starting to look at residential too, albeit selectively,” says Gagan Randev, National Director, Capital Markets & Investment Services, Colliers International India.
As per Colliers Research, steady economic expansion, persistent loose real monetary conditions and improvement in infrastructure spending ought to support the Indian investment property market.
Notwithstanding the economic disruption, the commercial real estate market has remained robust in 2017. The market has recorded pan-Indian leasing volume of about 35 million sq ft (till Nov 2017) excluding renewals and pre-commitments. Furthermore, co-working or flexible working space represents about 11% of total absorption over the first eleven months of 2017 (Jan- Nov 2017) compared to last year’s share of 3%. The office leasing market will remain robust in 2018 and over the subsequent few years, reflecting strong employment growth and economic reforms.
However, Colliers does not foresee a further increase in the absorption level, despite strong demand and other factors, such as the quest for workspace efficiency and the advent of flexible office space which may hold overall absorption volumes at the same level. It has also been observed that several technology and e-commerce companies are exploring expansion in Tier II and III Indian cities.
To achieve the mammoth task of ‘Housing for All by 2022’, the government has taken variuos initiatives, including grant of infrastructure status to affordable housing and Pradhan Mantri Awas Yojna (PMAY) – Housing for All (Urban). “We expect that private developer participation will increase in affordable housing owing to lower financing cost and income-tax exemptions for developers. Considering both the demand and supply factors, we expect affordable housing should be the next major growth area in the residential sector in the coming years,” as per Colliers Research.
With India forecast to see a notable economic growth in the coming years and Indian cities growing at a rate faster than most other cities in the world, Colliers expects property development to continue witnessing robust growth rate in the medium-to-long term.