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Current market scenario favours real estate investment

Saturday, June 22, 2019

By Ramesh Nair
CEO & Country Head, JLL India


Traditionally, India has a good share of investors who prefer to look at real estate investment. Over the years, various other asset classes have emerged and promise growth. But real estate has been the most popular asset class and is usually held as part of a larger portfolio. It has offered stable returns to investors over a long term. The asset class helps in diversification as its returns have a lower correlation with other asset classes like equity stocks and bonds.

Property investments have been the first choice due to its returns potential, tangible nature and emotional value. The returns from the sector over the long term have been stable even after accounting for periods of exuberance as well as shocks. With significant regulatory improvements in the country, real estate promises healthy returns. It is wise to say that investing in real estate is a good option.

Why buy now?
A slew of reforms has improved investors' perception of Indian real estate. These reforms like Real Estate Regulation Act (RERA), The Benami Prohibition Act and Goods and Services Tax (GST) brought earlier and the subsequent modification of REIT regulations have improved the absorption of office spaces.

Residential segment, however, has faced slow recovery. The residential sector has shown signs of reversal with sales growing by 42% for key seven cities in 2018 over the previous year. The sector is expected to move with caution and we expect volumes to come back with the modest price rise. The RERA rules have brought a level playing field for homebuyers and developers.

While the residential segment has remained the most favoured asset class among retail buyers, investments in the commercial segment in India has now become easier. The recent REIT listing by Blackstone-Embassy Office Parks has proved the point. We will see more such REIT listings in future.

Returns from REITs are made up of regular rental incomes (similar to an annuity) as well as capital appreciation of the underlying real estate assets. Considering the high office demand in the country, there is growth potential in investing in office space now. And return expectations from REITs in India are higher compared to other developed markets.

With the residential rates being stable, housing has yet again picked up as a favoured asset class. Government has already implemented fiscal measures to boost the overall economy and help the markets. These measures are likely to have an impact on the housing sector.

What stats say?
While institutional investments have driven the sector related investments and wealth creation so far, the time of the retail investor has come.

Indian real estate sector has attracted approximately US$ 30bn institutional investments during 2009-2018, the decade post-Global Financial Crisis. Indian real estate attracted US$ 9.4 bn between 2009-2013 accounting for 32% of the total investments during the decade i.e. 2009-2018. Compared to this, the period 2014 to 2018 witnessed a whopping 68% share of total institutional investments i.e. US$ 20 bn.

The market has been gradually becoming a more transparent market. Due RERA enactment, Indian market is more organized and accountable. There is uniformity in transactions now. This has reinstated homebuyers’ confidence. The recent electoral mandate is expected to lend continuity to the reform measures undertaken and provide stability to the real estate sector. This will ensure an atmosphere of confidence and growth of the sector and deliver competitive returns across assets classes in the years to come.

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