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Is now a good time to invest in the Indian property market?

Is now a good time to invest in the Indian property market?

M.D. Saini, MD and CEO of Shapoorji Pallonji International, discusses the current state of the Indian property industry

With property market sales in India expected to grow at 14 per cent (CAGR) until 2020 and 18 per cent from 2020-25, is this a golden era for the country’s real estate market?

“India is ranked fourth in developing Asia for FDI inflows, as per the World Investment Report 2016. That is an endorsement of the highest level. The global capital flow into Indian real estate in 2016 was around $5.7bn.

“As I see it, the implementation of the Real Estate Regulation & Development Act (RERA) and Goods and Services Tax (GST) will end up in ultimately enhanced consumer confidence and sustained growth of the sector.

“The affordable housing sector in India now possesses infrastructure status. With the availability of relatively inexpensive sources of finance, it is expected that around 10 million houses will be built in rural India by 2019. With a relatively favourable regulatory framework getting institutionalised, the government’s vision of ‘housing for all by 2022’ looks possible.

“With a business model of consolidation between various stakeholders of the real estate sector, it will become leaner and more organised.

“So with many changes happening and envisaged, the sector is becoming more and more organised.”

What do you put this growth down to? Why is India now enjoying such success?

“The credit goes to all stakeholders involved in organising numerous activities at different stages of the real estate sector, be it government policies or sector players’ adherence to them.

“The government is successfully playing the important role of bringing in a necessary and futuristic regulatory regime, and all other stakeholders are exhibiting better willingness in institutionalising the same.

“For most, the ‘success’ part of the process is yet to come. It’s the preparation that is currently going on for a rightly organised real estate sector.”

Is there a danger of some cities heading towards a property bubble? How are you and others working to avert any potential crash?

“It’s bound to happen. With the implementation of a new regulatory regime, there always comes some sort of uncertainty among various stakeholders. Everyone has become relatively conscious and this is resulting in a demand-supply gap, which is probably creating a property bubble. This is a by-product of the various changes happening currently.

“Also, a huge chunk of the youth population is migrating to the big cities every year in search of employment and they all need accommodation. This is one of the reasons that a few cities are observing this huge demand and supply gap, leading to an increase in property prices. The increasing culture of nuclear families is also adding to this in some manner.

“To avert any potential crash, developers are trying to maintain a healthy ratio of demand and supply so that property prices can be controlled. Developers are also concentrating on affordable housing projects to contribute towards the ‘housing for all’ initiative of the Indian Government, which shall help in avoiding and preventing such crashes.”

India is top of the list of preferred destinations for many investors – how much interest is there from the Gulf?

“India has indeed emerged as the top preferred destination for real estate investment in the eyes of many major institutional investors. It is also the fastest-growing major economy, set for growth of 7 per cent this year.

“Recently, a large government and business delegation from Abu Dhabi also visited India. The purpose was to increase bilateral trade, which now stands at $60bn a year. The UAE is hoping to boost its energy exports to India, a country that consumes 4 million barrels of oil a day. Currently, the UAE provides less than 10 per cent of those supplies. As an oil importer, India has benefited hugely from low oil prices.

“As I have learnt while speaking to various GCC authorities and corporate players, almost everyone has great faith in India’s economy.

“A large portion of the Gulf’s expat population comes from India, and most of the non-resident Indians (NRIs) living in Gulf countries show huge interest in investing their savings into the Indian real estate market, considering the growth and return on investment.

“NRIs from the Gulf have over the years emerged as a significant source of investment for the Indian real estate sector. Earlier, NRIs used to invest in the sector largely for end use or personal use. However, they are also buying real estate for investment purposes now.”

What do you foresee as the major real estate trends for the year ahead?

“India’s 1.3 billion people isn’t far behind China’s 1.4 billion, and is expected to be the world’s most populous nation by 2022, according to the United Nations.

“As observed, Indian people usually have little household debt, and the finance industry has been maturing in a way that will suit their future borrowing needs. This coupled with repeated interest-rate cuts by the Central Bank is expected to portray close to perfect conditions for property purchases.

“Global institutional investors have become the most prolific investors in Indian commercial real estate. So the trend in the long-term is surely
heading northwards.”

Shapoorji Pallonji recently celebrated its 150th anniversary. In that time, what have been the major challenges, and successes?

“Shapoorji Pallonji Group completed its sesquicentennial anniversary last year. In these years, the construction industry has changed rapidly. Matching and maintaining the pace with the growth of global industry was one of the few major challenges I observed.

“The continuous development of our systems, as well as the process and skill enhancement of our employees and workers through various training programmes, has helped us to grow our company over these years.

“In the last few decades we have expanded our business exponentially. We have entered various new geographies, and have integrated our offerings with many associated services.

“Venturing into new geographies or a new business segment brings with it several challenges, but with the due diligence of our experts, we have mitigated the risks attached to all of these potential challenges.”

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