New Delhi, February 6, 2014: The year 2013 was characterized by persistently high inflationary trends, declining investment flows, rising borrowing costs, and a steep devaluation of the Indian Rupee. Demand in the realty sector remained subdued throughout the year—particularly in the housing segment, resulting in sales slowdown and pressure on asset pricing across leading cities. According to CBRE’s newly released report, India Real Estate Overview 2013/Outlook 2014, sentiments are expected to improve in 2014, in case a clear political mandate is visible, following the General Elections in mid-2014. A clear, forward-looking and reform-oriented economic policy by the new political dispensation just might trigger growth by the second half of 2014, according to the report.
While the depreciating rupee helped generate demand from foreign investors in India’s property market; domestic home buyer sentiments remained cautious, because of relatively high price points and housing preferences shifting to secondary and emerging micro-markets of leading cities. Due to sluggish sales and rising construction costs, developers moved their focus from new launches to sale of unsold units. Delays in project execution continued to remain an over-riding concern in most emerging residential markets. The luxury residential segment remained more-or-less shielded from the slowdown, however, as cities like Mumbai continued to witness high value deals throughout the year.
Commenting on the findings of the report, Mr. Anshuman Magazine, Chairman and Managing Director of CBRE South Asia Pvt. Ltd., said, “If new supply comes in at an affordable price band, demand might take an upturn. Going forward, an improvement in economic sentiments, monetary easing by the central bank, and a sustained commitment by the government to invest in infrastructure are steps that might help turn the tide towards growth and greater investment in this sector.”
Commercial real estate markets in India witnessed caution on the part of corporate occupiers, resulting in subdued leasing activity in the first half of 2013. The availability of abundant, cost-effective office opportunities in the peripheries of leading cities—such as Delhi, Mumbai and Bangalore—attracted corporate demand to lease space and implement their impending expansion and/or consolidation plans.
The total office space absorption across the seven leading cities of the country stood at approximate 28 million sq. ft. by the end-2013—a y-o-y growth of about 8.7%. Bangalore was the leading city with a total space absorption of about 8.3 million sq. ft., witnessing y-o-y growth of nearly 32%, followed by Mumbai and the National Capital Region (NCR).
A recent European Occupier Survey conducted by CBRE’s EMEA Research team shows that India has emerged as the most popular expansion market for corporates based out of the region, with almost 48% of corporate respondents opting for it, up from 24% in 2012–13; compared to only 42% preferring China, down from 60 % in the same year. “Rapid urbanization, relatively more stable economic growth, coupled with increasing transparency and improving infrastructure, are factors that are contributing towards removing many of the traditional barriers to entry into India,” Mr. Anshuman Magazine added. As a signal perhaps, India’s commercial office market across leading cities has been headed towards a mature growth curve. This segment has attracted significant focus because of its stable rental yields, opportunity for capital appreciation and low risk profile. With the possibility of Indian REITs taking off, and India’s core commercial assets yielding comparatively high rentals among emerging markets, it would seem that India is presently poised to make the best of the opportunity headed its way.
With reference to the retail market, supply addition is expected not only in established markets such as the Delhi NCR and Mumbai, but also in emerging markets such as Pune and Chennai. The limited availability of quality retail space in core locations is likely to pose a greater barrier to new retailer entry in a number of key markets—including Delhi NCR, Mumbai and Bangalore. Rentals are also expected to continue to inch upwards in the coming few quarters as more global retail chains enter the country and expand to newer markets.
According to Mr. Magazine, “The year 2013 witnessed steady demand in the retail sector; and going forward, rentals across major micro-markets are likely to remain stable. With considerable supply lined up in the short to medium term, however, values remain competitive in select supply-driven micro-markets.”
From a policy standpoint, the passage of the Land Acquisition Act, the proposal for setting up the Real Estate Regulatory Authority (RERA), and the consideration of Real Estate Investment Trusts (REITs) are all likely to pave the way for long-term reforms in the industry. Although India is not yet a significant player in the regional real estate investment market, going forward, we expect the entry of REITs to provide alternative funding channels to the realty sector. This might trigger strong growth in the sector’s investment volumes. Add to that, the growing attractiveness of core real estate assets—such as commercial office and residential—and the projected recovery in economic sentiments could well position Indian real estate as a priority terminus for global institutional investors in the coming years.
Disclaimer:
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.