Investing in Indian real estate in 2021 could be the start of years of growth

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Suchit Punnose, Founder and CEO of Red Ribbon Asset Management on why 2021 is a good year to invest in Indian real estate.

By 2030, India will be the third biggest real estate market in the world. And, according to the latest report from Savills India, private equity investment in Indian real estate will reach $6 billion this year – a 30% year on year growth.

This growth is predicated on regulatory and policy reforms leading to improved economic sentiment. The investment did, of course, dip in 2020 due to the pandemic and corresponding decline in economic activity, investors are now looking for new ways to boost their returns.

Why investing in Indian real estate is a positive move in 2021

Over the last decade, real estate has evolved rapidly in India. Government initiatives have shored up a transparent regulatory framework. And according to the report from Savills India (Beyond the ’20: PE in Indian Real Estate) we can expect to see a new wave of real estate investments.

There will be strong activity across the commercial and residential real estate in India. Driven by the increase in affordable housing, warehousing and data centres springing up across the country, there will be growing investment in India. The commercial office sector will also attract more investment.

According to a separate report from Colliers India, Q3 2020 saw commercial space occupancy rise to 58%. This is an excellent indication of consumer confidence, given the pandemic. India has the second highest number of COVID-19 cases in the world, with more than 10.3 million confirmed. The Government is just about to start a mass vaccination rollout that will see 300 million people protected by August 2021.

While India grapples with the pandemic, many companies are back in the office, and this will increase as the vaccination reassures both the population, company owners and investors.

Regulatory changes paving the way for a strong real estate sector

In June 2020, the Securities Exchange Board of India (SEBI) restored investor confidence by declassifying the status of a sponsor for Infrastructure Investment Trusts (InvT) and Real Estate Investment Trusts (REITs). This led to more investment in commercial real estate compared with alternative asset classes.

Non-Resident Indians (NRIs) are also considering investing in Indian real estate due to its reputation as a safe asset class. Insecurity is obviously rife among investors from India and from overseas and the focus is now on assets that will stay stable and lucrative.

India is one of the fastest growing economies in the world and real estate continues to dominate for investors. Improved trade relations, a continuation of policy support from the Government and a swift rollout of vaccines will all drive sentiment through 2021.

Logistics and warehousing property have proven themselves as resilient asset classes so far in India since the pandemic began. We will see the leasing of warehouses increasing by around 60% in 2021 compared with figures from last year. This will ensure investors keep their eyes on the sector for the opportunity.

India’s real estate sector has a huge potential over the next few years

Last year was a line in the sand for industry sectors around the world. And the economy in India has proven remarkably resilient thanks to the strength of its underlying infrastructure. And its strength as an investment hub will also continue to prove its worth through this year and beyond.

India’s population is growing fast. If we add into this mix rapid industrialisation and urbanisation, then it’s clear why India is one of the most attractive regions in the world for real estate investment.

The potential of this sector for investors is massive, and research shows that by 2025 real estate in India will contribute around 13% to the country’s overall GDP. India’s economy is driven by the power of its 1.35 billion people. By 2036 this will reach 1.52 billion, according to the National Commission on Population (NCP) by the Indian Government.

According to these figures, in approximately 2031 India’s population will beat China’s and the country will be the most populous in the world. The same report shows that up to 70% of this increase will be in urban areas. By 2036, the urban population of India will reach 594 million – this is a growth of 57% from 2011 figures.

Current real estate investment trends in India

  • Demand for affordable housing is becoming more concentrated.

Because more people are moving to cities and urbanisation is ramping up rapidly in India, this is changing the demand for housing. More and more available jobs are in the service sector and are located in the centre of towns and cities. This is pushing up the need for efficient and sustainable office and residential space. It is almost certain that demand will continue to outstrip supply, which means reliable investment opportunities.

  • Residential property is part of the rise in general standards of living

Global construction research shows that between now and 2025, India will be part f the expected 72% rise in the global building. This means, right now, infrastructure, connectivity and standards of living are rising all the time. Real estate in India will continue to develop at a global scale and house prices will also be subject to the changes in economic stability.

  • Rise in emerging micro-markets

There are pockets of extremely high demand for residential housing, and these micro-markets will continue to emerge.

  • Reaping the benefits of the 2017 reforms

Real estate is one of the most important contributors to India’s economy, and over the last couple of years we’ve seen the changes wrought by the progressive policy reforms brought in to boost the sector. These include the 2016 real Estate Regulation Act (RERA), has brought much more uniformity and transparency to the sector. This has pushed up the demand from buyers.

Combining industry expertise to provide exceptional investment opportunities

Red Ribbon Fund Management Limited has recently launched a multi-class India REIT along with partners RE RISE GmbH and Hamberg Capital. Called Red Ribbon Rise, the multi asset class closed end fund will invest directly into income and capital growth property projects.

The timing for investors could not be better and this fund draws on years of experience from all three businesses to create opportunities for investors. RE RISE has years of expertise investing in emerging real estate markets, while Hamberg Capital has been advising real estate funds for more than 30 years.

We will see immense growth in the real estate market in India, despite the pandemic and all of the challenges it has brought. The new fund is perfectly timed to allow investors to take advantage of these years of growth. More details can be found here.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.