Commercial Real Estate to Be the Best Bet for Investors in India
Experts say that commercial real estate is definitely a best bet for the investors, as the assets seem to be available at the attractive valuations with the background of falling interest rates.
Real estate has been a good investment for lots of people in India from quite some time, one main reason for this is the sense of security it provides. But in the recent times, yet another reason has come to light and it’s nothing but the striking rise in the real estate prices over the last few years. However a few quarters in 2015 saw the abatement of rise which made the investors think that real estate is not a good investment option. But the experts say that the abatement is just for the residential real estate, and the commercial real estate is definitely a good bet for an investor.
India, with the underserved economy (with respect to real estate requirements) is followed by a significant gap in the demand and supply of units in both commercial and residential real estate. Having seen this, Indian government introduced the strong policy reforms to bring in more transparency to the investors and end users. It’s been said that 2016 is going to be a great year for the real estate market. Supporting this, office space absorption in the country stood at 35 million sq. ft. which was the second highest figure in absorption after 2011.
Vacancy Level in India
The vacancy level in India is still around 10 – 14%, but the cities like Bengaluru, Pune, Chennai and Hyderabad have the vacancy rate of just 5-10%; this prompts the need for fresh supply in order to meet the growing demand. The developers are also backing off from commercial projects as the rents are not reaching the points where they can get the Internal Rate of Return (IRR) of 18-20%. However if the rents start climbing, the developers are sure to start the constructions at least in good markets.
Policy Reforms to Improve Market Sentiments
The government reformed the policies and these reformed policies are expected to improve the real estate market sentiments in India. So the non-resident Indians (NRIs) and foreign nationals can directly invest on domestic AIF (Alternate Investment funds) in India. The regulatory bill of real estate which was long awaited has finally been passed and is said that it leads to significant transparency in the real estate dealings. Along with the tax pass-through status awarded to investors, the government has also offered some treaty benefits to the investors, which has been the main reason for them investing on real estate.
Increased Demand from Commercial Real Estate
The demand from commercial real estate is increasing with the increase in rentals and occupancy. With increased penetration of ecommerce sector, the need for quality warehouses and workplaces will also be on the rise. It’s been estimated that about $180 billion is being earmarked for the infrastructure development in the year 2016-2017. This will certainly play a huge role in the availability of top quality commercial spaces for retail and manufacturing industries. Also the automobile sector which seems to be booming is also expected to create high demand for commercial spaces.
Analysing all these, experts say that commercial real estate is definitely a best bet for the investors, as the assets seem to be available at the attractive valuations with the background of falling interest rates. It’s also expected that the year 2016-2017 creates a huge demand for office spaces; the demand would be mainly from the sectors like IT/ ITeS, Manufacturing, Pharmacy, BFSI, FMCG, Ecommerce and so on. The real estate industry is getting matured each day and the next few years will surely see a huge upside with regulations and policies in place. Growth in country’s economy would help us see a favourable reflection in real estate as well.
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ABOUT THE AUTHOR
I'm Pamela Joe, interested in commercial real estate property management.