India in 2015 has been relatively calmer amongst the BRICs nations. Induced by relatively strong growth numbers and large FII and FDI coming into the country, and significant revival of the domestic and US economy, India remained an active investment destination. Nothing proved it better than the firming up of commercial real estate across India in 2015.
With the government relaxing the norms of Foreign Direct Investment in construction industry, including removing the restrictions on the minimum capitalisation and areas, it is likely that in 2016, the real estate sector in India will continue to experience a strong and steady demand. It is also likely that these relaxed norms would help monetise significant amount of land holdings which were not able to attract FDI earlier, thus helping increase liquidity for developers in India.
2016 will also see a renewed interest from the Private Equity fraternity towards investments in Indian real estate. Real Estate companies are expected to raise more money from private equity funds in 2016 than last year after the government simplified foreign direct investment norms for the sector last year. By a conservative estimate basis market information, close to USD 3 – 4 billion of funds (~ INR 20,000 – 25,000 crores) are in the process of being raised specifically for the Indian market, particularly for residential and commercial real estate, and to be managed by reputed institutions. Significant traction is being seen from the US and middle-eastern regions for such funds. PE investments in real estate could even surpass the USD 4.8 billion fund infusion seen in 2015. Given the nature of tenure for PE funds, it is expected that at least 30 – 35% of such funds raised would be deployed in 2016 itself. While the way PE investments are structured could see a change, the money is set to be invested in selected cities, developers and projects with strong track record and underlying fundamentals, respectively. There is also a likelihood of investment flowing into the tier 2 cities, especially for residential real estate.
All this bodes well for our industry in 2016. Strong market fundamentals, a stable US economy, lower global oil prices and reviving domestic demand and consumption are likely to act as catalysts for the coming year contributing a positive spin to our real estate industry.
About the author
Vaibhav Mahurkar is Director, Office Services with Colliers International India. He comes with more than 14 years of Office and Retail Real Estate experience. At Colliers, he works on multi-market entry strategies, site selection analytics, acquisition underwriting, and portfolio optimisation and disposition strategies for prestigious accounts of large capacities.