The policy initiatives, including the much-awaited implementation of the Real Estate Regulatory Act is making real estate more attractive for large institutional investors, Christian Ulbrich , CEO - JLL, told Kailash Babar in an exclusive interaction.
India is clearly moving in the right direction which is inspiring confidence among global investors looking to invest in regions with a long-term view, he said. Edited excerpts.
How are foreign investors viewing the ongoing transformation in terms of regulatory developments, in Indian real estate?
India grew the fastest among major economies worldwide, at just over 7 per cent last year. It will continue to drive global growth in 2017, with its share in the world GDP expected to rise to 17 per cent. On the back of very positive changes in its regulatory framework, India is now a lot more attractive to foreign investors.
Some other important developments that will impact Indian real estate very favourably are the increased rate of consolidation, improved transparency and the fact that REITs (Real Estate Investment Trusts) are very likely to be launched this year. Increased foreign and domestic investor participation is more or less a given in the times ahead.
More Fortune 1000 companies are now looking at increasing their exposure in India, attracted by the efforts being put in by the government on the country’s ‘ease of doing business’ rankings and the overall policy framework.
In particular, the office asset class will attract very significant interest from global investors in 2017. Foreign developers are actively pursuing strategic partnerships and are looking to forge more joint ventures in India, and Asian developers—particularly from China and Japan —will be investing about $3-4 billion into the country’s real estate sector over the next three years.
They are primarily focusing on mega industrial projects. Already, 2016 saw a very visible return of equity investments in India, and we witnessed private equity inflows here increase to the tune of 62 per cent from a year ago.
Last year alone, the total private equity inflows stacked up to Rs 38,000 crore, which is an impressive jump over the Rs 23,500 crore of 2015. This year is likely to emerge as even better than 2016, despite Brexit and the outcome of US presidential elections.
Where does the Indian real estate stand vis-à-vis global markets in terms of transparency? Will the Real Estate Regulatory Act and other policy changes help in improving accountability and transparency?
In JLL’s 2016 Global Real Estate Transparency Index (GRETI), India’s tier-I cities edged up the 36th rank on the back of improvements in structural reforms & liberalisation of the foreign direct investment (FDI) policy.
The 36th spot is among 109 countries and accounts for an improvement of 4 positions. Today, Indian tier-II cites rank higher than China’s tier-1.5 & tier-2 cities. Investors increasingly look at geographically diverse cities, local data availability & coverage.
While globally the divide between primary, secondary &tertiary cities is wide, India now presents a different case because there is the relatively consistent availability of data across its city tiers.
India’s less spectacular score in transaction process —or the high costs of investment transactions — and the weak professional standards among local agents will doubtlessly see improvement in the 2016-18 assessment period of JLL’s next Transparency Index. The enactment of the Real Estate (Regulation and Development) Act and arrival of a reliable real estate regulator will play a key role here.
How would you rank India as a prospective REITs market for global investors?
The formation of Real Estate Investment Trusts (REITs) will be a major disruptor by aiding the expansion of India’s quality real estate universe and giving developers another instrument to exit their projects.
India has a massive REIT potential, with around 229 million sq. ft of office space currently being REIT-compliant. Even with only about half of this being listed over the next few years, we are looking at a total REIT listing worth $18.5 billion. Moreover, as India’s stock of Grade-A and superior Grade-A commercial assets grows, it presents great opportunities for REITs and scores of their potential retail investors.
How is the Indian property market placed in the current international scenario with respect to pricing and investment transactions?
India is home to six of the world’s 30 most dynamic cities. In JLL’s City Momentum Index (CMI) 2017, the country’s primary IT and technology hub —Bengaluru —sits right on top. Indian real estate has attracted about $32 billion in private equity so far.
The global capital flows into Indian real estate in 2016 stood at nearly $5.7 billion. Globally, capital allocations to real estate are growing. We expect in the next decade, more than $1trillion will be targeting the sector globally, compared to $700 billion now.
This growth means investors are demanding further improvements in real estate transparency, and expecting the standards in real estate to be at least on a par with other asset classes.
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