If it walks like a duck and quacks like a duck, it’s probably a duck: which is good news if you’re looking for a duck. And the same faithful formula applies to commercial markets: forget all the background noise, if it’s growing and looks like growing more, it’s probably good to invest in. You don’t need to be Warren Buffett (or Aristotle) to work that one out, and right now the needle for Indian Real Estate is reading high on both counts. Despite the (to put it mildly) dampening effects of COVID lockdown restrictions, the subcontinent’s property markets are facing a perfect storm of growth and opportunity…so this is a time to build and buy.
The sector has grown by 11.2% over the last two years and market analysts now predict pre-COVID levels will be reached again before the third quarter of this year, with the Affordable segment expected to perform especially well in areas including Hyderabad, Bangalore, Mumbai and Pune.
So what exactly are the factors combining to make this perfect storm?
Disruption and Acceleration
Well, first of all, there’s COVID itself. Like most major market disrupters, the pandemic (beyond its obvious short term impact) has not delayed growth: it has turbo charged existing trends. With more time locked down at home, people are spending more time searching for (and buying) new properties online, which has created a sharp spike in demand. Competitive bidding thrives when there’s little else to look at and nothing else to do, and prices are shooting up as a result. Then, of course, that old (new) favourite Zoom has brought us virtual viewings as well, so you didn’t even need to leave home before splashing your cash. And when you bear in mind that India has the fastest growing population of any large economy on the planet, that’s a lot of cash to splash.
High Yields, Low Interest
The Reserve Bank of India has held the all important repo rate at 4% for several months, and last month announced its intention to keep it there as long as necessary to support future economic expansion, which means two things for real estate. First, the consequential fall and resulting long term hold in deposit rates makes it more attractive than ever to invest in rental properties where yields are holding up at 3% annually: making even a relatively modest appreciation year on year increasingly attractive. And, secondly, tax breaks will bring down still further the real time cost of borrowing for those in higher income brackets, making the move to property investment still more advantageous. With a characteristic sense of understatement, Prashant Thakur (Director and Head of Research at the influential Anarock Property Consultancy thinks “buying now means buying at the lowest possible price”.
He might be right there…
The REIT Revolution
Prime Minister Modi’s Government introduced the Real Estate Investment Trust (or REIT) to the subcontinent in April 2019, with the aim of expanding commercial and property investment, and the pandemic has done little to dilute its impact. Even during the most stringent lockdown restrictions, rental collections, the lifeblood of any REIT, still remained strong through to the first quarter of this year at 97% saturation (according to Motilal Oswald Real Estate): underpinned, of course, by GST and RERA initiatives that have progressively improved liquidity levels within the financial system as a whole.
Overseas investors haven’t been slow to pick up on the opportunities either, with a surge in levels of FDI likely to drive an even strong recovery in commercial and residential assets over the course of the year.
A Brighter Future
All of which is good news for the future of the subcontinent as a whole: real estate accounts for 7% of India’s economy, the second biggest employer in the country (after agriculture) and a cornerstone for employment in more than 220 ancillary industries. And current growth trends within the sector are projected to increase real estate’s share of the economy to 13% within the next four years.
So now is the time to build in India…now is the time to buy.
Executive Overview
Indian Real Estate has always been a key area of focus for us, and I’m genuinely excited by the trends emerging on the subcontinent as lockdown restrictions are eased. It is, indeed, a perfect storm for growth and opportunity.
