More than a decade since the global financial crisis, Asia Pacific real estate continues to produce strong returns. But as the clock ticks down towards the end of the current cycle, caution is increasingly embedded into investor strategies.
In India, investments in commercial real estate is a runaway success. However, residential developers are in a downward spiral. A government crackdown on banking-sector malpractice, combined with growing credit risk among developers, has seen banks pull the plug on real estate lending. With the nonbank financial sector in similarly dire straits, developers now have nowhere to turn for finance.
But there was some cause for optimism as India has finally introduced its first REIT. This is seen as a positive omen for future Indian REIT listings. Other domestic developers, including several in South India and in Mumbai, are now looking at listing portfolios of their own, with two or three new REITs likely to come to the market in 2020.
| Cities | City Investment Prospects, 2020 |
|---|---|
| Singapore | 6.31 |
Ho Chi Minh City | 6.06 |
| Melbourne | 5.95 |
| Shenzhen | 5.86 |
| Shanghai | 5.73 |
| Guangzhou | 5.36 |
| Mumbai | 5.07 |
| Beijing | 4.97 |
| New Delhi | 4.93 |
| Bangalore | 4.90 |
| Hong Kong SAR | 3.93 |
Generally poor
Fair
Generally good
Challenges faced by real estate investors in APAC
Some of thechallenges faced by real estate investors in APAC are:
- Global trade wars and currency volatility
- Lack of investable properties and low yields
- Competition from Asian and global buyers
- Cost of finance and interest rate hikes
Outlook for REIT listings in India
It took five years to introduce the first REIT listing in India. The first Indian REIT listing, saw its share price shoot up some 34 per cent in its first six months, shrinking the implied yield to less than 6 per cent-a remarkably low level for a market where risk is perceived to be high. One interviewee suggested that, given higher taxes and currency volatility, Indian REITs ought to trade at a yield of some 12 per cent to 13 per cent to be comparable on a risk/return basis to the region’s major REIT markets.
Unlike REITs in most other markets, in the case of REIT listings in India, “it’s not about rent appreciation, it’s the cap rate compression story that’s driving the value appreciation.” Unsurprisingly, this is seen as a positive omen for future REIT listings in India.
Real estate investment trends in India
- New Delhi (15th in real estate investment, 15th in real estate development)
- Bangalore (16th in real estate investment, 14th in real estate development)
- Mumbai (12th in real estate investment, 9th in real estate development)
New Delhi (15th in real estate investment, 15th in real estate development)
- New Delhi has traditionally been focused more on residential development, so the downturn in the residential market nationally is probably felt more keenly here than in other parts of the country.
- With regard to investments incommercial real estatein New Delhi, India, take up of new office space is rising by around 30 per cent annually. It is strongest in Noida since Noida offers cheaper office facilities.
- The logistics sector in Delhi is also booming. While finding a good development partner in northern India remains a challenge, the demand for distribution and warehousing services remains high.
Bangalore (16th in real estate investment, 14th in real estate development)
- Bangalore has been undeniably the big success story of India’s IT park and business process outsourcing (BPO) sector.
- In Bangalore, India, investing incommercial real estatecontinues to expand at a breakneck pace.
- Absorption grew some 30 to 35 per cent year-on year in the first half of 2019, rentals have continued to rise and large pools of capital are available for further investment.
Mumbai (12th in real estate investment, 9th in real estate development)
- In Mumbai, India, investment incommercial real estatecontinues to go from strength to strength. Demand for office space continues to be very strong.
- The residential real estate sector, however, is as weak as the commercial side is strong, especially among the mid-tier development community, which is desperately short on capital. Further consolidation among developers, therefore, seems likely.
- Authorities continue to build out transport infrastructure, improving connectivity to new areas such as Navi Mumbai, which houses many new IT parks. While a potential oversupply situation may be brewing over the coming three-year period, these new facilities have better access to manpower as well as a lower cost of living.
- Capital values continue to trend upwards, driven by rising rents, and both foreign and domestic players are actively bidding for good assets whenever they come to market.
Real estate investment trends in APAC
Office sector
123
Coworking sector
123
Retail sector
123
Residential sector
123
Industrial/logistics sector
123
Hotel sector
123
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About Emerging Trends in Real Estate® Asia Pacific
Emerging Trends in Real Estate® Asia Pacific is a trends and forecast publication now in its 14th edition, undertaken jointly by PwC and the Urban Land Institute. It provides an outlook on real estate investment trends in the APAC, development trends, real estate finance and capital markets, property sectors, metropolitan areas, and other real estate issues throughout the Asia Pacific region.Read our Emerging Trends in Real Estate Asia Pacific 2018 report for a full perspective.
*Includes New Zealand, Thailand, Malaysia, South Korea, United Kingdom, Germany, Belgium, Taiwan, Burma, United States, Russia, Indonesia, Vietnam, and Netherlands.
