India realty sector to get $4-5 b investments

Source: Deccan Herald: 27th Jan 2013

Investments seen shifting from bonds to real estate

India’s realty sector is set for inflows of $ 4 to 5 billion from global investors in the next couple of years, with Bangalore, Delhi and Mumbai emerging as favourites, according to the  Asia Pacific CEO of global real estate consultancy firm Jones Lang LaSalle (JLL).

“The early foreign investors in India, who came in around 2006-07, did not have very good experience, partly because of their inexperience in doing business in India and partly because of global financial crisis,” Alastair Hughes said at the World Economic Forum (WEF) Annual Meeting.

They don’t seem to be perturbed by it as India’s growth rate is still an attraction, according to him. “Foreign investors are now looking with a renewed interest at India, given its still robust economic growth rate as that bodes well for good returns to their investments,” Hughes said.

He  added that there is more international money today waiting to be invested in India than any of the last five years. Overseas investors have invested $ 14 billion into the Indian real estate sector over the period from 2006 to 2012.

In the last two years, foreign investment into Indian real estate has been around $ 1.2 billion per annum.

Around half of all transactions were invested in residential property, a quarter in the offices sector and the remaining quarter was split among other sectors.

According to him,  2013 and 2014 look more promising from an investment standpoint and the realty sector would get about $ $ 4-5 billion, mainly to buy income yielding SEZ assets at a capitalisation rate of 10.75 per cent.  Globally, Hughes said, there was a boom in 2007, followed by a bust in 2008, in the realty sector, while there has been a gradual recovery since the end of 2009.

Investments into Asia Pacific commercial real estate market fell around 10 per cent in 2012, from $ 98 billion to about $ 92 billion. “It was because of a sense of caution prevailing in different countries. But now we are seeing a change in the sentiments,” he said.

“One of the reasons for that is people looking to divert their investments from bonds to equities and other asset classes and that include real estate. Therefore more money is coming to real estate and a bigger proportion of that we see coming to Asia Pacific,” he added.

He said that in the retail sector, a very high growth is expected with the (likely) entry of foreign retailers.

Besides, manufacturing and industrial sector would also benefit a lot as retailers would need to set up logistics facilities. The residential space is also set for growth, he added.