India property market on the move
The Indian real estate market will be particularly lucrative for overseas investors in the immediate years ahead as the Indian Government moves toward passing real estate investment trust (REIT) legislation, according to a senior real estate investment officer with a recognised Indian fund manager.
“Unlike a lot of the overseas markets, there is very little commonality between the property markets and the capital markets in India because there is no existing REIT legislation,” explained Kotak India Realty Fund chief investment officer Hari Krishna.
“But we believe that over the next three to four years going forward, the capital markets and property markets will come together and that will create a lot of value,” he added.
Krishna cited several sections of the real estate market that would offer the best value, one of which was commercial property space; that is industrial parks as opposed to downtown office premises, mainly due to India’s growth in the IT sector.
However, he was quick to point out that investing in retail shopping centres was not likely to be as attractive.
“The main reason for this is that the international retailers, either the hypermarkets or supermarkets, are not allowed into the country on a wholly owned basis. So while a Louis Vuitton can set up its own stores, a Walmart is not allowed,” Krishna explained.
Without these players, he feels the yield on investments cannot be maximised.
Another area Krishna thought would make a worthwhile investment is hotels, as a large gap in the market between five star establishments and cheap accommodation exists.
The driving factor for this situation has been bank reluctance to lend money to projects that have to be developed and then held compared to those that are developed and then sold. It typically means capital for these schemes have had to be sourced from within.
Krishna reinforced the attractive nature of these sectors because they also carried exemptions to allow overseas investment via debt as opposed to other areas that only allow foreign investment through equity.
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