Sharing this article which appeared in ET Realty
Major property markets including Mumbai, New Delhi and Bangalore are likely to witness more appetite from foreign investors for real estate investment in 2016 as shown by rankings of these cities as perceived by investors, showed a perception study conducted by PricewaterhouseCoopers and Urban Land Institute.
The study ranks Bangalore, Mumbai and New Delhi at 12th, 13th and 16th positions for investment prospects and at 15th, 13th and 11th positions for development prospects respectively, in the list of the 22 markets covered in the report.
While there has been a marginal drop in rankings of Mumbai and New Delhi from an investment prospects perspective against 11th and 14th rank, respectively in 2015, Bangalore has shown a remarkable improvement moving up 5 positions over its last year’s ranking of 17.
“While Mumbai and New Delhi have marginally dropped in rankings, from an investment prospect perspective, New Delhi ranks 2nd and Mumbai ranks 5th in the buy recommendation rankings for industrial / distribution properties among the 22 cities covered,” said Abhishek Goenka, Partner, PwC India. “Furthermore, Mumbai ranks 8th and 9th, respectively, for office and residential buy recommendations. These numbers, in a way, indicate that the investment prospect rankings of these cities could move up and push into the “Top-10″ bracket in the years to come.”
According to Goenka, from a deal structure perspective, while mezzanine financing continues, a shift in the favour of equity structures has occurred, especially in big ticket transactions in commercial assets such as business parks and IT parks.
The study highlights that the Mumbai is on a recovery path on the commercial real estate side and, down-town is on stable ground. Delhi and nearby industrial zones have one the biggest pipelines of new supply in Asia and on the ground, occupancy problems are focused on B-grade or secondary assets rather than the higher-quality buildings, for which the demand remains high.
Bangalore market, however, is different than that in Mumbai and Delhi, where even the huge amount of upcoming supply of commercial office inventory is not perceived to be a cause of concern, as it is expected to be matched by an equally high absorption rate, the report added.
Overall, the outlook seems to be positive and this is evidenced by the fact that the 80% of the foreign capital inflows have been all-equity buyouts by big institutional players. Even those investors who had burnt their fingers in the first round of investments in 2006-07, are not wary of Indian markets anymore, and are willing to bet their money once again on the Indian real estate story.
In the city specific observations, the survey results suggest that Mumbai is on a recovery path as far as the commercial real estate side is concerned. Further, on the residential end, there is currently a reasonable amount of oversupply in the suburbs; however, with the recent slowdown of approvals for new projects, the oversupply situation could get addressed to a certain extent.
New Delhi, on the other hand, is expected to see the biggest pipeline primarily on account of Delhi-Mumbai Industrial Corridor, a cornerstone project of the current government supported by Japanese capital that aims to develop eight international-standard industrial clusters between the two cities. Further, cash crunched developers in the residential space are being targeted by foreign investors to provide rescue capital.
The survey was conducted through the months of September and October 2015, prior to the further liberalisation in regulations for foreign direct investment in construction development sector and foreign investment in Alternative Investment Funds and therefore, it does not take into account the changes in sentiment, if any, on account of these developments. However, according to PwC India, the mood across industry has only become more vibrant and exhilarating in the last few weeks.
“Overall in Asia, real estate markets are expected to remain resilient despite weakening economic fundamentals throughout 2016, as capital continues to flow into the industry from a variety of investment sources, both domestic and international. Japan remains a favored country for real estate activity, with Tokyo and Osaka ranked first and fourth, respectively, in terms of investment for next year,” Goenka added.