Investment in India’s commercial real estate market has increased more than fivefold in a decade as investors seek to take advantage of the city’s strong demographics and governmental reforms.
Commercial real estate investment in India hit US$5.5 billion in 2019 with more than US$20 billion invested in the past five years.
The numbers come as investment into global commercial real estate markets hit a record high of US$800 billion in 2019.
India is proving particularly attractive to overseas capital as large global investors seek to take advantage of the country’s rapid growth.
“India’s fastest growing cities have been drawing significant levels of interest from overseas investors, who are looking to tap into the country’s growing economy,” says Stuart Crow, CEO Capital Markets, JLL Asia Pacific.
Leading the pack has been Blackstone Group, which had invested US$6.6 billion in Indian real estate by September 2019, according to local media. Other global investors heavily committed to India include Brookfield and Canada Pension Plan Investment Board. Thus far, foreign investment has been limited to larger investors, who have made a long-term commitment to India.
India’s economy and demographics have been attractive for some time: GDP growth has averaged 6 to 8 percent over the past decade and the nation has a young population (a median age of 28 compared with 38 in China) and a rapidly growing middle class. Bain & Company predicts consumption will grow to US$5.7 trillion in 2030, from US$1.5 trillion in 2018.
However, it is the combination of government reforms with economic drivers which has led India real estate to really take off. The government of Narendra Modi, which won a second term last year, has introduced a series of reforms, many of which have benefitted the real estate sector. These include the Real Estate (Regulation and Development) Act, 2016, which introduced a number of measures to improve transparency, and relaxation of restrictions on foreign direct investment. These improvements to the business environment have made India easier to invest in than many emerging economies, which restrict foreign ownership.
The government has also made a huge commitment to improving the nation’s infrastructure. Last September, India committed to spending US$1.5 trillion on new infrastructure, part of plans to more than double the size of the Indian economy to US$5 trillion over the next five years.
“We are starting to see the fruits of the Indian government’s ongoing focus on improving infrastructure and making it easier to do business. These structural reforms bring more market transparency, which boosts investment into real estate,” says Crow.
Improved confidence from global investors is clearly evident, says Priyank Shah, Director, Capital Markets Asia Pacific, JLL. “The last 4 years have seen investment double. India’s real estate sector attracted approximately US$30 billion of institutional investment between 2009 and 2018, the decade post GFC.”
The office sector has been the prime target so far, with both Brookfield and Blackstone acquiring billions of dollars’ worth of office parks in booming IT cities such as Bengaluru. Last year, Blackstone launched India’s first real estate investment trust in partnership with local group Embassy. The success of that REIT, which has seen its unit price risen by one third since it floated, has been another confidence boost for Indian real estate.
However the sector with most growth potential is logistics, which has seen substantial investment from sector specialists, often backed by global investors. Again, structural reform has driven the market. The introduction of a national goods and services tax (GST) in 2017 replaced a host of state taxes which had made establishing national logistics networks difficult.
Since then, logistics majors GLP, ESR and Logos have invested heavily in establishing India operations. For example GLP joined forces with India’s largest logistics specialist Indospace, alongside capital from CPPIB.
“India’s logistics real estate sector is gaining favour due to e-commerce growth and changes in consumption habits,” says Shah.
The favoured cities for international investment so far have been India’s capital, Delhi, the financial capital of Mumbai and IT stronghold Bengaluru, which together have accounted for two thirds of real estate investments over the past decade.
JLL’s City Momentum Index 2020, which identifies the world’s most dynamic cities from a real estate perspective, is led by two Indian cities: Hyderabad and Bengaluru. Another five Indian cities make the Top 20 – Chennai (5th), Delhi (6th), Pune (12th), Kolkata (16th) and Mumbai (20th).