To say that 2015 has been a difficult time for the Indian real estate market is something of an understatement. The buoyancy of the previous couple of years soon disappeared along with confidence that developers would actually be able to deliver developments on time and within budget. As a consequence, there is a massive backlog of properties available in the Indian market with investors on the sidelines waiting for this overhang of property to be taken out.
So, is there hope for 2016 or will the next 12 months be a further extension of a difficult 2015?
Private equity funds
It is believed that many private equity funds are currently discussing an array of fundraising projects which could raise up to $4 billion. The bulk of this is likely to come from overseas investors amid signs that the Indian government is more receptive to interest from overseas. Indeed the slackening of laws restricting overseas ownership of Indian real estate has been well received and 2016 is likely to see the best of this particular move.
It is hoped that these fundraising exercises will allow much of the unsold property to be taken out thereby reducing the overhang on prices. Until the majority of this unsold property is taken out it is difficult to see why investors will suddenly en masse invest in Indian property.
Can we expect a gradual recovery?
As we touched on above, private equity funds will be cash rich in 2016, the troubled overhang of rental properties will likely start to reduce and tighter regulations covering developers and investors should inject more confidence. There is a growing belief that property developers have learned lessons from the past and are unlikely to make the same mistakes as years gone by. This saw many investors left with investments in properties which were either well behind schedule, well above budget or were never finished. This encouraged accusations of fraud and underhand activity which did confidence in Indian real estate no good whatsoever.
There is a growing opinion that we will see a shift from “investor driven” markets more towards “end-user driven” activity. Even though many private investors have been delaying potential real estate investments throughout 2015 there are signs that things are changing. We may see home prices fall further in the early part of 2016 but there are hopes of recovery thereafter.
Indian office space
Even though 2015 was a difficult time for the Indian real estate market the Indian office space sector performed admirably. Recently we have seen a large amount of available office space changing hands amid signs that long-term private equity investors are willing to fund new office space developments. The e-commerce sector in India is still very strong and rental yields on office space are proving attractive to an array of different investors.
India was recently confirmed as the fastest-growing economy in 2015 and while further growth is expected in 2016 we may see a reduction in the growth rate. However, all in all it looks as though the Indian real estate market is fairly well-positioned for 2016 in what many believe could be a transitional year.