A drop of nearly 40% between 2009-2012, if we consider growth only in the unorganized real estate sector. Slowdown – Not a unilateral phenomenon Where, exactly, did this unwholesome trend apply in a land known not only for its political and societal diversity, but also for sheer geographical spread? After all, everything doesn’t happen the same way at the same time in the third-largest country in Asia and largest country in South Asia. Or, for that reason, in terms of the political implications in different states that separate a huge land mass, each governed by different authorities with different political objectives and the economic imperatives that govern each particular segment. The all-important ‘location, location, location’ factor aside, the capital value appreciation of pure land went beyond 100% in India’s questionable boom period. Cities like Hyderabad saw exponential land price appreciation in 2004-2008 – amounting to over cent-per-cent growth in its major areas. What was at play? Primarily, prevalent favourable policies benefiting the state back then. Similarly, Pune saw a significant IT boom during the 2009-2013 period, which eventually caused land prices to appreciate by as much as 60% during this period. We are talking about the phenomenon of some parts of a huge country performing extraordinarily well, while others didn’t.
India is simply too big to generalize about. If we compare the country to a physical body, some parts received less nutrients and were poisoned by toxic elements, while other parts suffered less or no similar exposure and remained immune. The available 5-year returns trends for Indian residential real estate certainly indicate that the previous haphazard growth in Indian real estate market was gradually replaced by more realistic and mature market behaviours. Taken holistically, perhaps far too slowly – but every part of the massive corpus called India represents a different chain of impulses, requirements and performance levels. Some markets are almost completely end-user-driven, which puts the lid on speculative price hiking. Other markets are more amenable for investors – albeit, in the new market environment, only those with a long-term view. Changing market dynamics, and the acceptance of such change, happened in pockets rather than unilaterally. Wherever they are and wherever they invested to whatever extent, investors have had to come to terms with this change. Just like in the stock market, long-term investors who see the big picture have responded differently than short-term speculators who can only appreciate a quick buck. The new residential money-spinners Residential real estate is no longer a singular concept in India. Backed by government sops, affordable housing can feasibly give returns to the tune of 8-10% in the long term. There are also a number of alternate residential real estate investment options – including serviced apartments, senior living, Smart City-based housing, and co-living. The monthly rental ROI for these residential sub-categories is a lot higher than for mainstay mid-income or luxury housing. Much depends on how much an investor has kept abreast of the rapidly-changing Indian housing market. For instance, co-living units can offer as much as 8-11% of ROI – a much higher yield than the current average yield of 1-3% in garden-variety residential properties. How many investors are gauging the intricate variances that drive returns on investment in Indian residential real estate, and how many are just going by the old thumb rules? There are immensely profitable asset classes in Indian residential real estate investment, but far too few investors are actually scanning the radar for them. Commercial real estate beckons wealthy investors In earlier years, most small ticket investors banked heavily on residential properties for their investments. Today, wealthier investors are eyeing commercial properties and ‘sunshine’ sectors like warehousing. Also, REITs (Real Estate Investment Trusts) have finally kicked off in India, and commercial real estate is attracting a lot of attention from real estate investors. The recent oversubscription of the Embassy-Blackstone REITs definitely sends out clear signals to global as well as domestic investors – it’s a good time to grab a piece of the Indian office property pie. In fact, we expect REITs investors to become more bullish and eye stakes in multiple Indian commercial assets which may be listed under REITs in the future.