Everyone in India has a view on Real Estate! However, a myth that needs to be busted is that the real estate sector is a homogeneous, one-dimensional sector. Instead of looking at real estate as a whole, it should be seen from the lens of the different asset classes within Real Estate. Residential, commercial, retail, hospitality and industrial/warehousing are the asset classes that make up the real estate sector.
Residential real estate has been sluggish for the last couple years, exacerbating the issues are the multiple reforms of the Real Estate Regulatory Act, Goods & Services Tax and Demonetization, which have delayed buying decisions as consumers want to see how the reforms play out. Consumers are also are gravitating towards larger developers as they are better prepared to absorb the changes brought about by these reforms. This has led to massive consolidation in all micro markets.
Additionally, the mutual fund asset class has gained momentum, where personal savings are going to mutual funds and equity markets, cannibalizing investment in residential real estate. We expect buying of property to continue being very opportunistic over the next 12 months as well.
This asset class has seen strong demand over the last few years. Global funds have been buying completed commercial real estate in India with plans to who are list these assets as a real estate investment trust (REIT).
Commercial real estate should see a strong 2019, however, the next 2-3 years may be less euphoric as the completed inventory increases in micro most markets.
The retail sector has faced headwinds over the last few years with numerous malls being deserted and the fierce competition from e-commerce. However, there has been an upward tick in this asset class over the last 12-18 months with investments from retail-focused funds. Abu Dhabi Investment Authority backed Lake Shore, Blackstone, Canada’s CPPIB, Xander’s VR Retail are infusing much-needed capital into the sector, owning and operating in the retail sector.
With long term capital and expertise behind this asset class we believe that 2019, and the next few years look promising.
This asset class has been having a tough run over the last few years. A lot of hotel chains are struggling and the occupancy is not strong enough due to weak demand, and supply side issues.
The market has also become more competitive with the rise of disruptive players like Airbnb and Oyo Rooms. This asset class, unfortunately, will continue to struggle because of significant oversupply and heavy capital requirements.
The industrial and warehousing sector is an interesting space. GST brought a positive tailwind to the logistics sector. Global industrial & logistics players are showing keen interest in this market. Investments from funds like CPPIB, Warburg Pincus, Hong Kong-based e-Shang Redwood in this space is making this unorganized sector become more institutionalized. The burgeoning e-commerce sector has helped the warehousing sector and will continue to do so. It would be worth keeping an eye on this asset class.