India, known as the world’s back office, could supplant China to become Asia’s top real estate investment destination, according to analysts.
Known for attracting multinationals to set up their global capability centres (GCC), India is becoming a major investment magnet for many global players, they said.
However, it will take time before Asia’s third-largest economy solidifies its position as the premier investment destination, given that China and Japan have a more developed ecosystem to facilitate investment, according to Ada Choi, head of research for Asia-Pacific at CBRE.
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In May, Singapore’s GIC and partner Xander Group acquired a 100 per cent stake in Waverock SEZ, a 2.4 million sq ft office property in the southern city of Hyderabad, for about 22 billion rupees (US$262 million), according to agents.
CapitaLand India Trust, another Singapore-backed entity, also snapped up a 100 per cent stake in Phoenix Group IT buildings in Hitec City in Hyderabad.
Japan’s Daibiru Corporation is investing US$123.5 million to develop Atrium Place, an office project near the capital Delhi.
Canada’s Brookfield Asset Management has also invested in office and retail properties in Delhi.
These deals have helped India to become the fourth-largest real estate investment destination in the Asia-Pacific region after Japan, China and Singapore this year, according to CBRE. In terms of cross-border investment, India tied with Japan in getting the most investment at US$2.6 billion.
“India, I think, down the road, is going to replace mainland China as the highest growth market in Asia-Pacific,” said Choi. “At this moment, we see that the investment volume, or the penetration of international investors in India is still very low.”
In terms of land and development sites, India received about US$1.5 billion in cross-border investment in the 12 months to June, ranking third worldwide, according to Colliers. That was a far cry from the US$36.5 billion invested in China and US$1.93 billion in Singapore.
“Foreign investors mainly look into office assets because of the strong fundamentals supported by the growing demand of GCC,” said Choi. “Occupancy rates are high in mature business areas, with rental performance steadily improving.”
Badal Yagnik, CEO of Colliers India, said the country’s attractiveness as a property investment option is underpinned by its economic success.
“Institutional investments in Indian real estate have crossed US$60 billion in the last 10 years,” Yagnik said. “ A vast majority of the real estate-specific institutional inflows have come from foreign players and the trend is likely to continue.”
Given the anticipated rise of India as a preferred foreign capital destination, global investors are likely to increasingly partner with domestic institutions and provide tailor-made financing solutions to leading real estate players in the Indian market, Yagnik added.
With India on track to become the world’s third-largest economy by 2030 and continue rapid growth until 2047, Yagnik estimates that the property industry’s contribution to the overall economic output will be between 14 per cent and 20 per cent by then. The sector accounted for 6 per cent to 8 per cent of economic growth in 2021.
However, to realise its full potential as a top property investment bet, India still needs to develop a pool of domestic investors to fully support the industry’s growth, said CBRE’s Choi.
“It is too early to debate whether India will become the largest property investment market,” she said.
“There are still foreign investment and ownership restrictions on freehold land. Also, their REIT [real estate investment trust] market is new. The country needs to accumulate sufficient capital and brew its own institutional investors for real estate assets.”
While India’s growth has come from the export of its services sector, China was able to achieve its economic trajectory via its manufacturing industry, said Choi.
However, Colliers’ Yagnik cautioned that geopolitical and climate risks could act “as potential roadblocks in the accelerated growth journey of Indian real estate”.
India’s future economic growth and consequently its real estate depends on the seamless and phased transition from fossil fuels to green energy, he added.
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