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Real Estate

An Insight into Current Financial Markets of Asia

November 23, 2020


India’s relevance in the world as a country to make investments in has gone up in the recent past and for the right reasons. While the country always attracted investor, what has changed in the recent past is the challenges that would earlier prevent the investor, such as the reduction in red tape, ease of doing business, or the ability to invest in certain sectors which were heavily regulated earlier. As a result, more money is coming to India. Add to this the US-China tension that has changed how investment options in Asia are now looked at, making India more interesting, accessible and obvious to a large host of investors. 

Sustainability of Offices

Though pandemic has made the workforce comfortable with WFH, investors still believe that office as an asset is sustainable, albeit with different expectations. In the current backdrop, just constructing the building in itself will not result in tenants as it used to earlier. The developers need to ensure that the property is designed with a focus on delivering “intelligent, collaborative and dynamic” workspaces to end-users. In fact, these values are at the core of our commercial office spaces segment Intellion by Tata Realty.

Booming REITs market

 India currently has 2 REITs listed with a third one expected soon. All these developments are making Indian real estate more institutionalised with practices being aligned with global standards and perspective. While, this will surely prove crucial in drawing more investors to India, government policies and regulations too need to adapt so that promoters are ready to put their good assets and roll it into the REIT. 

Investment opportunities 

India competes with other emerging markets, mainly China and Vietnam, in vying for investors' regional allocations.  However, it’s not fair to generalize between different countries as each provides different benefits to foreign institutional capital. The general expectations would be for the foreign capital to flow where there are more benefits and whether the location has inherent factors that would attract foreign capital. 
The current drivers of investments are business parks, commercial, logistics and data centres with an exception of residential which are a part of larger projects. Each investor has different objectives which influence the choice of investments, for eg residential makes sense where the aim is cash flow velocity but not if the investor wants cash flows over a period of time. 

Challenges and the Road Ahead

The Indian government has always led from the front when it comes to policymaking. However, the federal nature of Indian polity often jeopardises the execution of these policies. The investors are hoping that over a period of time there will be an alignment between states and union government bringing consistency in policies which would make investing in India a lot easier. Also, further opening up of the market to enable combining foreign and domestic investor dynamics would prove quite fruitful for the sector. The first preference of the government should be to focus on the provision of public goods, such as road, infrastructure etc. However, in tier 2, the government can step in to provide the 1st asset that can be the catalyst and get the demand going in such cities
Besides these, state governments also need to address development and operational challenges more swiftly. Any delay causes serious effects on the returns and credibility of a project. They could also provide industry-relevant training starting from a lower value add moving to higher competencies. 
India is doing well with renewable energy and green power. What is challenging is the ability to remain consistent in managing the product. While there is clarity in design, execution and ensuring asset management competencies needs more attention. Even with regards to technology use during construction and management phase, a lot more can improve. 
Being prepared for the unexpected is inherent to investment markets such as India. In any emerging market, things often don’t happen the way you expect. First and foremost, get the mindset adjusted then move on to sub-strategies, be it process, practices, advisors, or partners.
It is expected that the whole ecosystem will take time to recover from the effects of COVID-19. People have gotten used to working remotely. While we can’t travel, we would hope fungible capital continues to travel to India.

*This article is based on my GRI Fireside chat with Jonathan Yap, President, CapitaLand Financial.

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