April 12, 2024

Roundtable: India’s Real Estate Market is Stable and Scalable

Pallavi Bhargavva, our Senior Director, Investments and Asset Management, Asia Pacific, based in our Mumbai office, spoke about the strengths of the Indian real estate market at a roundtable discussion on India organized by PERE magazine and attended by CapitaLand Investment India, HDFC Capital Advisors and Logicap Management.

Amid the Modi government’s ongoing regulatory reforms and increasing investment in the country’s infrastructure, India offers significant potential for real estate investors. Pallavi Bhargavva also highlights the many sustainable investment initiatives that boost India’s real estate sector in recent years.

This article was originally published on the PERE website. Click here to read the full version. Below is a summary of Pallavi Bhargavva’s quotes.

India’s economy has been on a roll for the past decade, with persistent GDP growth, a wave of infrastructure investment and a platform of economic reform. After Narendra Modi was elected prime minister in 2014, India embarked on twin programs of economic reform and infrastructure investment, both of which significantly change the economic outlook for the nation. “In India, for the first time, infrastructure is driving development, says Pallavi Bhargavva. Over the past 10 years, national highways have grown by 60 percent, and we have witnessed growth across ports, airports and other areas. It is not just the development of physical infrastructure, but digital too.” She cites digital innovations such as the United Payments Interface, an instant payment system, and Aadhaar, a digital entity code that helps people access government programs. These have “formalized and democratized Indian commerce, laying the base for incremental and inclusive growth”, Pallavi Bhargavva says.

While current economic reforms are helping to make the country more attractive, it should also be noted that India is one of very few global real estate markets to largely unruffled by the hikes in interest rates over 2022 and 2023. Interest rates did rise in India, but from a higher base, making the effect on the market outlook far less dramatic – rates rose from 4 percent to 6.5 percent. Indeed, MSCI data shows Indian commercial real estate transaction volume rose 10 percent year-on-year to $4.4 billion in 2023. “The rise in Indian interest rates has had a lesser effect on values – cap rates have expanded but not at the same rate – because the increase in interest rates on a percentage basis is lower in India and margins on financing have reduced, says Pallavi Bhargavva. Banks are well capitalized, the fundamentals are strong. India is not a leveraged play, unlike many developed markets.

Pallavi Bhargavva

Roundtable participants have observed more investors turning their attention to India recently. “Pension funds and global institutions have been very cautious about deploying capital in the current environment, says Pallavi Bhargavva. However, India is standing out in Asia-Pacific. Some of this reflects capital being allocated to alternative markets to China, but it is also a reflection of India’s growth. Ivanhoé Cambridge has increased its allocation over the past two years.

Alongside support from regulatory reform and investment in the country’s infrastructure, the sheer scale of India is attracting investors. The country has a population of 1.4 billion and half are under 25 years old, providing potential for significant growth and an opportunity for investors to scale their portfolios. As part of it, logistics has been a key sector for foreign investors. Pallavi Bhargavva says this sector remains a high-conviction for Ivanhoé Cambridge. “Logistics is part of the infrastructure, the backbone of the economy, says Pallavi Bhargavva. We see three sectors which will drive warehousing growth: manufacturing, e-commerce and the growth of retail.

The combination of scale and stability is something few markets can replicate, says Pallavi Bhargavva. “When you think that India GDP is set to grow from $3.7 trillion to $5 trillion in the next few years and India is predicted to be the third-largest economy by 2027, we will see growth across any business that you pick. There is no other emerging market which offers the same scale as India”, says Pallavi Bhargavva.

Sustainable initiatives boost India real estate
Indian asset owners and tenants are beginning to align on sustainability, with new office developments leading the way. “All stakeholders – government, investors, developers and tenants – seem to be aligned on ESG”, says Pallavi Bhargavva. Between 2020 and 2023 the number of offices gaining green certification rose 60 percent, and overall India ranks third in the LEED certification globally. “As India is going to see a lot of new stock the percentage of green buildings is likely to increase further”, Pallavi Bhargavva adds.

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