It is fair to say there have been some turbulent times over the last few years with regards to the Indian real estate market. We have seen some major regulatory changes in the property market as well as a overhauling of the currency and money-laundering laws. Looking back, the impact of these changes, with the timing surprising many investors, was relatively short lived and seen as a positive move longer term. As we move into 2019, how is the Indian real estate market looking?
Indian general election
As we approach the next general election in India it will be interesting to see whether the government waters down the introduction of new regulations or continues to take a strong lead. If there was a change in government this may lead to some short-term concerns but as we know, markets learn to adapt very quickly. Therefore, even a change in government may not be the end of the world.
Demand for office space
In 2018 we saw an increase of 20% in office space with banks and technology companies at the forefront. There is a general consensus that the Indian economy will show significant growth in 2019. As a consequence, this is likely to fuel demand for more office space and therefore push prices higher in the short to medium term.
Shared office space
Shared office space/co-working space is an area of the market which has grown significantly in recent times. There are now more than 200 shared office space companies in India. Indian entrepreneurial spirit is still extremely strong and a growing economy is likely to fuel this trend. Therefore, it is difficult to see anything but positives for the shared office space sector and those developing new sites.
Supply and demand
Surprisingly, when you bear in mind the size of the Indian population and the research which is carried out by developers, supply and demand has been an issue. Demand is still relatively strong but a number of property developers appear to have misunderstood the type of properties end users were looking for. Better matching of supply and demand is something which all developers should focus on during 2019 and beyond. We also have the Indian government continuing to promote affordable housing which is proving very effective.
Greater confidence in property developers
The trend for consolidation amongst property developers began in 2018 and will continue in 2019. Joint ventures, development management relationships and mergers will likely see the number of property developers in India fall. There is also the ongoing issue of non-bank financial companies and their stretched balance sheets which will cover later in the article. A smaller number of larger property development companies can only be good for investor confidence.
Non-bank financial companies under pressure
Those who follow the Indian real estate market will be well aware of the ongoing struggles of non-bank financial companies (NBFCs). They have been extremely prominent in the world of development finance in recent times although appear to have committed their finance to long-term projects while taking their eye off short-term cash flow. As a consequence, this has prompted many traditional banks to withdraw refinancing options from the marketplace while the government addresses the issue. This is by far and away the most challenging issue facing the Indian real estate sector in 2019.