property

Funds flood into India real estate in record first-half

Amount touches Rs160b and more on the way as scale of reforms catches their eye

13:19 July 26, 2017
Apartment buildings in Palava City, Mumbai

Dubai: Investment funds are renewing their liking for Indian property — in the first six months a record Rs160 billion (Dh9.1 billion) poured in and with more on the way.

That’s far more than was achieved in the glory year of the first half of 2007 (when Rs130 billion came calling) and the first six months of 2016 (when they crossed Rs150 billion), according to estimates by the consultancy JLL India.

The Indian economy’s growth rate might have slipped a few basis points here and there; its manufacturing sector is yet to break the shackles of legacy regulations; and stock markets continue on their volatile ride. But India’s real estate is rocking. And nobody is even mentioning demonetisation inspired fears for the sector.

“With the roll-out of RERA — the Real Estate (Regulation and Amendment) Act — and uniformity of a single tax with the introduction of GST (Goods and Service Tax), we will definitely see the advent of a more transparent real estate industry,” said Anuj Puri, Chairman of newly launched Anarock Property Consultants.

“It bears remembering that with the opening up of FDI (foreign direct investment) in 2006 and institutional investments pouring into the sector over the last 10 years, we have already seen an increased level of transparency. That said, it was evident that more regulation was required — and RERA will bring unprecedented levels of discipline and transparency into the sector.

“The Indian government is committed to bringing in the necessary changes that will help home buyers, investors, the various other industry stakeholders and the sector at large.”

Empowering property buyers

On reforms, and especially on real estate specific ones, the current Indian government is into overdrive. The RERA itself represents a radical shift, by empowering property buyers in ways that were never thought possible in an Indian context. Last week, as per RERA, developers will have to provide for a 5-year structural warranty. It is the first time that such an ironclad condition is being laid down. Earlier, the rule of thumb was a property buyer was lucky to get any sort of long-term guarantee over a building’s structural soundness.

India’s real estate market is indeed going through a transformation. “(The) GST, RERA, REIT (real estate investment trust), the Benami Property Act, demonetisation and constant focus on affordable housing will lead to the sector evolving into a more mature, consolidated and highly transparent industry,” said Shobhit Agarwal, Managing Director — Capital Markets & International Director, JLL India. “This, in turn, is expected to attract further private equity from abroad.”

But Anarock has already made that move. It was in June that Anarock confirmed plans to create a Rs300 million residential portfolio — from the seven Indian metropolises — and to raise it to $500 million by 2020. Puri, formerly chairman and country head of JLL India, did surpass a few by focusing on residential assets than commercial real estate, where there is significant demand for new space in the major cities.

Bounce back

But Puri has his justifications. “The current residential market with its limited new launches provides a great “buy” opportunity across our target markets,” he added. “The average residential rates have remained stagnant over the last 12 months, and we are of the view that the southward journey of the rates has been arrested.

“We expect prices to bounce back over the next 8-12 months. However, the rental market and yield on residential rents remain at current levels in the major metros.

“The capital growth opportunity at current prices is compelling. For residential rentals to be at par with commercial leases, one will need to redraw the tenancy laws in the country.”

Anarock will do the bulk-purchase of apartments through a proprietary investment fund, and will also provide debt, equity and mezzanine funding to residential-focused developers.

On whether Anarock was specifically talking to Gulf-based institutions for new funding, Puri said: “We are in advance talks with global institutions for strategic tie-ups across our investment platform, which includes asset management and managed account allocations.

“We see residential as severely underserved in India, and funding residential projects by credible developers is part of our overall sharp-focus on this sector at this time. We do see REITs as a crucial vehicle for annuities, which will help the growth and holding of lease assets, and we will enter the segment at the right time.”

The Anarock strategy for a role in India’s residential space

* The Anarock investment and fund platform is targeting a capitalisation of $500 million by 2020. It currently operates two funds — the ROF-I is fully deployed at Rs1.61 billion. The ROF-II, for which Rs3 billion was raised in 2016, will invest in “meaningful” residential assets from an existing pipeline. Its deployment will commence as soon as it completes the last leg of regulatory requirements.