Strong and systematic focus on long-term growth goals, coupled with robust reforms and a flood of investments, have made the sub-continental giant a red hot real estate destination.
The union budget presented by India’s National Democratic Alliance (NDA) government on February 28, 2015 marked a landmark change in the country’s economic course. Deviating from the short-term approach of fragile coalition governments in the past 20 years, Prime Minister Narendra Modi’s government with a clear majority put populism on the backseat and opted for a structured growth path for greater economic gains in the future. While initiatives like reduced subsidies and dedicated funds for creation of infrastructure will go a long way in boosting the overall economic growth – which is already chugging along at an impressive 8 percent – specific reforms like smoother land acquisition and easing of norms for Real Estate Investment Trusts (REITs) have come as a boon for the country’s booming real estate market.
“India’s economy is in a bright spot compared to the rest of the world. On one hand, there is reduced vulnerability to economic slowdown, persistent inflation, slackening domestic demand and currency fluctuations and on the other hand, there is a conscious thrust towards macro-economic stability, greater fiscal prudence, high employment generation and indigenous manufacturing,” says Anshuman Magazine, CMD, CBRE South Asia, adding that India is tipped to reach a double digit growth trajectory in the next few years, even overtaking China’s rate of growth along the way.
While the sheer scale and scope of the Indian economy has attracted foreign investments in its real estate sector over the years, the country is now emerging as a preferred destination. A recent research report by consultancy Cushman & Wakefield revealed that India attracted investments of over USD 5 billion in 2014 alone, ranking among the top 20 global destinations and the third in terms of year-on-year growth, with 140 percent increase in foreign investments in real estate compared to 2013. “The huge growth in foreign investment volumes in India are proof that investors are already acting out on their expectations of improvements in the ease of doing business in India backed by regulatory reforms to be implemented by the new government. We expect investment volumes to increase even more and touch levels found in the top 10 global investment destinations,” says Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield, adding that there is huge long-term potential if the government addresses supply-side bottlenecks such as poor infrastructure to enhance India’s position as a global IT and outsourcing hub, as these could boost private investments – both local and international.
It’s REIT time
After giving a green signal to Real Estate Investment Trusts through a new legislation last year, the union government has announced fresh reforms to pave the way for a much-needed REIT regime. “There is an estimated 370 million square feet of Grade A office stock in India of which 170 million square feet is of REIT standards,” says Anuj Puri, Chairman and Country Head, JLL India, adding that overseas investors will be able to access stable assets through the REIT route, earning good appreciation with minimum tax implications.
While the recent rationalisation in the union budget qualifies investors in REITs for exemptions on capital gains, the finance minister has announced that the norms will be further simplified in the months to come to encourage REIT-driven foreign investments in real estate. Simultaneously, the government will now allow foreign investments in Alternative Investment Funds (AIFs), a category of pooled-in investment vehicles for real estate, private equity and hedge funds. “AIFs are funds established or incorporated in India for the purpose of pooling in capital from investors for investing as per a pre-decided policy,” says Puri, adding that for foreign investors with low risk appetite, REITs and AIFs are the ideal tools to enter the lucrative high-rentals-and-high-appreciation Indian real estate market.
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