REAL ESTATE INVESTMENT OUTLOOK IN $5 TRILLION ECONOMY

WITH RISING PACE OF VACCINATION ACROSS THE GLOBE, THE WORLD GDP IS PROJECTED TO REBOUND TO 5.5% IN 2021. INDIA IS WIDELY EXPECTED TO LEAD GLOBAL RECOVERY AND REAL ESTATE WILL PLAY A SIGNIFICANT ROLE IN THE DEVELOPMENT OF INDIAN ECONOMY. By: Sapna Srivastava Over the past year, the real estate sector has transformed in many ways. The consolidation during the pandemic was a positive outcome as it made the sector more attractive for the domestic as well as the international investors. Notwithstanding the disruptions of the pandemic, the long-term outlook for all real estate segments continue to be positive though varied in terms of the cyclical i.e. short term changes. As per ICRA estimates, Indian firms are expected to raise >Rs. 3.5 trillion (US$ 48 billion) through infrastructure and real estate investment trusts in 2022. Arpit Singh, Managing Director, Xander Investment Management stated,” We being an emerging market focused investment firm, consider India as a key focus market Last 18 months were extremely volatile for the real estate industry and a roller coaster ride for investors and operators in realty space. I think it will continue for the next one year depending on the pandemic situation. But this also provides an opportunity if we look at it from investors' perspective. Macro themes like India’s demographic profile, presence of affluent middle class and growing urbanization makes India an attractive investment destination across all asset classes of real estate.” Vipul Roongta, Managing Director & CEO – HDFC Capital Advisors Ltd expressing similar sentiments said, “Real estate has become a favourable investment option among individual investors during the pandemic. With the prices and home loans becoming the lowest in recent history, it has boosted the homebuyer’s interest. Also, as compared to earlier times when a developer's equity in a project was 5-10%, it is now almost twice in new projects. HDFC Capital’s strategy is that of partnering with top-rated developers across India and address the demand-supply gap by providing flexible, long-term capital." Dr. Annurag Batra, Editor-in-Chief & Chairman, exchange4media & BusinessWorld Media Group expressed, “Indian Real estate sector over the last decade had lost its sheen as an investment class. With the current pandemic situation, real estate has bounced back but there is a cautious optimism for the future as the country is still not out of the pandemic.” Khushru Jijina, Executive Director, Financial Services, Piramal Enterprises Ltd. & MD, Piramal Capital & Housing Finance Ltd was of the view that Indian real estate has progressed from being just a brick and mortar to becoming a service industry with ‘hotelization’ of commercial realty and residential segment becoming even more organized. "In pre Covid era, everyone was talking about commercial segment and how residential was struggling, now the situation has turned 360 degrees. SWAMIH fund has provided funds to stalled projects while, investors like banks, NBFC's, private equity players are backing professionally organized developers and financially viable projects." Snehdeep Aggarwal, Founder, Chairman, Bhartiya Group added that given India has the second largest housing segment after China, it will generate strong demand for next 20 years. "Investors have a huge opportunity in the untapped real estate market of India especially the residential segment,’ he said. Investments from private equity (PE) players and VC funds reached US$ 4.06 billion in 2020. The real estate segment attracted private equity investments worth Rs. 23,946 crore (US$ 3,241 million) across 19 deals in Q4 FY21. Investments in the sector grew 16x compared with Rs. 1,470 crore (US$ 199 million) in Q4 FY20. In value terms, these investments were 80% of that in 2020 and 48% of 2019. EMERGING REAL ESTATE THEMES Making a significant rebound the realty sector saw some emerging themes in various assets born by the market upheavals during the pandemic. Housing segment remains at the top of government agenda, catalysing construction of affordable housing projects and affordable rental housing complexes (ARHC) and finalizing the Model Tenancy Act. As the industrial & logistics (I&L) segment takes centerstage, government is keen to extend support via draft national logistics and industrial policies and investments in setting up industrial corridors. E-commerce policy formulation will provide a level playing field to all players encouraging warehousing real estate investments. Growing need for digitization leading to increased focus on data centers (DC) and formalization of the segment through a DC policy and government investments makes this the most attractive investment opportunity for institutional funds.

1. Residential: Ten years ago residential used to receive the largest chunk of investment from private equity space in India, which saw a slump in the last few years. With the current reorganization of the residential space, equity investment in the residential sector will pick up again. Also, to mitigate execution risks, developer consolidation and a higher number of JVs / JDs are likely going forward.
2. Offices: Overall the office market had been resilient. Indian office market remains bullish as strong fundamentals of the sector continue to drive more occupiers and investors and attract huge deals. There will be portfolio optimization via the right mix of traditional, flexible spaces and remote working strategy.
3. Retail: The retail sector had a tough past one and a half years but is expected to rapidly bounce back as entertainment and shopping has a huge demand amongst people. Landlords with flexible lease terms, malls with flexible / convertible / open spaces will witness greater retailer interest.
4. Industrial: Industrial was the segment which was lagging behind before the pandemic. Now it has witnessed very strong performance and huge amount of capital. With manufacturing moving from China, India has an immense opportunity to attract companies by providing institutionalised industrial parks. Overall leasing volume will increase in 2022, as availability of supply improves.
5. Alternative Assets: Student housing, warehousing, data parks and co-working and co-living spaces are the latest favourites of investors in India and are gaining steam. REITs will have better access to low-cost capital from debt / equity markets and higher liquidity will enable increased capital deployment.

TRENDS DEFINING INVESTMENTS The Indian government’s focus on infrastructure development implies growth prospects of real estate as well. The investors though point out execution challenges such as changing regulations, land title issues, lack of transparency and governance. Arpit Singh elaborated, “If we can solve these existing problems then there will be huge tractions coming from international and national investors into Indian real estate sector. There is a thirst for income generating assets and a lot of private equity investment in India will be focused around yield generating assets and quality projects. Deals size in India will continue to be large but volume will be low due to the execution challenges. For that matter, REIT's have large potential to grow in Indian real estate market. I believet 10-20% investment will go into alternative asset classes in Indian real estate sector.” Dr. Annurag Batra agreed, “It's a great time to invest in real estate directly and through stocks. There is enough liquidity in the market for the right product and player. The positive economic outlook, demand revival in residential with strong end-user interest and government impetus as well as alternative asset classes like data centers, student accommodation and flexible spaces will bring in more investments to the sector beyond 2021.” The 3 C's of Indian economy - Compassion, Collaboration and Contactless are keeping the Indian realty industry afloat and will drive its future growth. Snehdeep Aggarwal added, “There are a lot of opportunities in social housing development which will see great boom in the next ten years due to central government incentives for affordable housing. I can see more large finance companies, banks and global capital foraying in this segment. However, development of a conducive ecosystem is crucial for both demand and supply." Vipul Roongta said, “Pandemic has changed the view of investors. In the commercial and warehousing space we have seen a maximum amount of money being invested. Data centers are in significant demand and retail will bounce back quickly. We have invested in around 9 start-up platforms in different verticals of real estate and a big tech-platform in the logistics space as the potential to make money from consumer technology is huge. We plan to invest two billion dollars in the residential real estate sector in the next 2-3 years and are also looking into commercial space and rental housing segments.” Khushru Jijina stated, “"We happen to be one of the important stakeholders in this industry. Our main focus is to ensure that the developers who we have given funds, deliver their projects on time. Besides residential, other exciting segments for us are warehousing, industrial and data centres. Consolidation in the industry among listed and non-listed companies will continue for next 3-4 years. I can foresee stability in residential real estate and absorption of new age services in the commercial segment." Technology Integration: Technology will play a big part in Indian real estate sector. Pandemic accelerated the adoption of technology in construction, marketing and operations of realty projects and boosted confidence of the investors. Sustainability Factor: Sustainability is an important mandate especially for foreign investors. Projects with sustainability features integrated in the development strategy will attract more institutional investments going forward. Investors’ Confidence: Real estate has regained its position as an attractive investment class. Globally it has been noticed wherever economy is coming back to normal, sales have bounced back strongly in every segment of real estate. INVESTORS PERSPECTIVE In general, investors are currently focusing on one key market segment while analysing other asset classes to spread their footprint. Investor’s emphasis is on quality over quantity in terms of delivering projects. As the market moves rapidly with any micro or macro change, understanding the niche market and business model is the top priority. Some of the non-negotiable factors for institutional real estate investor are the following of regulatory compliances, legal frameworks, clear titles and transparency in functioning as well as ESG practices as per the company’s global mandates. The views were expressed during the VCWorld "Convergence” The Global Real Estate Investment Summit" organized By Realty+ in association With BW Businessworld