THE COMPLETION of several large transactions including a couple of deals worth over $500 million each — pushed up the total real estate investment volume in the Asia Pacific region in the June–September period to $35 billion, a quarter-on-quarter increase of about 40 per cent (as per the CBRE APAC Capital Mar-kets MarketView 03 2014 report). By the latest estimate of Oxford Economics, the year-on-year economic growth of Asia Pacific in 2014 at approximately 4.4 per cent, slightly up from its June forecast of 4.3 per cent. The 2014 real estate in-vestment forecast for India, meanwhile, also indicates an improvement due to government's stimulus efforts.

INSTITUTIONAL INVESTMENTS IN INDIA'S REAL ESTATE SECTOR

INSTITUTIONAL INVESTMENTS and capital mar-ket transactions in the India realty market during the first nine months of the year stood at approximately $4.5 billion. Out of this, land and development stage transactions attracted the highest quantum of investments (nearly 60 per cent) from domestic as well as foreign entities during the period, indicating perhaps a significant amount of investment in Greenfield and Brown¬field development. The commercial office segment, meanwhile, attracted more than 20 per cent of this total investment amount during the period in question.

In terms of investment locations, Mumbai's realty market attracted the highest investment, followed by Delhi and Bangalore. In terms of total real estate investments made in Mumbai and Delhi during the period, land and development stage transactions spelt nearly 70 per cent and more than 60 per cent of total realty investments in the cities, respectively. In the case of Bangalore, more than 50 per cent of total investments during the period were attracted by the commercial office segment.

Office space transactions, in fact, increased by about 20 per cent year-on-year in the first nine months, with more large-scale space leases and higher lease volumes on an average over the previous year across leading cities in India. The period saw significant investor interest in completed and well-leased core commercial office assets and IT parks across key cities. Investment highlights during the first nine months of 2014 also included GIC announcing the formation of a joint venture with Bangalore-based development firm, Brigade Enterprises, where the two firms plan to invest approximately $250 million in residential and mixed-use development in cities across southern India.

GOVERNMENT STIMULUS SPURS CAPITAL MARKETS IN INDIA 

WHILE INVESTOR INTEREST in India and South-east Asia steadily increased over the first nine months of the year, this interest is yet to translate into an increase in investment turnover. India, accorded a sizeable uptick in business confidence following the coming of a new government earlier in the year. The new govemment is expected to implement policies to attract foreign direct investment (FDI) and develop the Real Estate Investment Trust (REIT) market. FDI alone savv a dramatic 34 per cent y-o-y increase in India during Q1 2014-15 as multi-national firms reacted positively to the new government's reform agenda. On the regulatory front, India's realty sector saw two major developments — the Securities and Exchange Board of India's (Sebi's) notification of final guidelines on the setting up of FtEIT and Infrastructure Investment Trusts (InvITs), and the revision in FDI norms for the construction sector.

FUNDING AVENUES

THE LENDING ENVIRONMENT remained mixed in the geography during the first nine months of the year, with India having to address challenges such as inflationary pressures (which has sit. begun to ease off gradually). Capital markets in India saw the growth of non-banking lending activity as property firms continued to find it difficult to obtain project financing from commercial banks.

At a time when the country's realty sector has been struggling for alternate avenues of funding—other than traditional banks and financial institutions—private players have been sourcing institutional capital. At such a juncture, permitting REIT and InvIT is expected to act as a key enabler for capital markets in the country, and provide investors with exit options.

The outlook for capital markets in India's realty sector continues to look positive and trans¬action activity is expected to improve further in forthcoming quarters. September 2014 saw global credit rating agency, Standard and Poor, raising the outlook for India from 'negative' to 'stable', with the rationale that the country's new government mandate and improved political situation offered a more positive environment for much-needed reforms.


- by Anshuman Magazine for The Indian Express
(The author is CMD, CBRE SouthAsia)