Even though the Indian real estate market is under something of a cloud at the moment it seems as though Wall Street giants Goldman Sachs, Warburg Pincus and Blackstone cannot get enough. The combined investment of these three giants over the last few months has now topped $900 million with many believing there is significant long-term potential in India. This will come as a surprise to some investors amid warnings that Indian real estate market is showing signs of a slowdown, stalling under reduced sales numbers and debt issues.
So, what do the Wall Street giants see in the Indian real estate market that others seem to be missing in the short term?
Private equity inflows
Private equity inflows to the Indian real estate market, both domestic and foreign, are now approaching levels not seen since 2011. It seems that some of the stalled projects of recent times are now progressing and approaching completion which would release significant capital for other projects. In many ways the stalling of various projects has caused an impact similar to the buying chain when looking to acquire a property. If one part of the chain is broken then the rest is either delayed or deals can fall apart.
There is a growing feeling that the general election of 2014 has brought a breath of fresh air to the Indian economy and the Indian real estate market. Sentiment did begin to pick up as soon as the election result was announced amid signs that the new government was looking to boost economic growth in the short, medium and longer term as well as targeting a more transparent real estate sector.
Is the trust factor improving?
The trust factor is very closely linked to sentiment and the fact there are well documented issues with Indian real estate in years gone by has not gone unnoticed. It would seem that many investors, both domestic and foreign, are now being a little more selective about their investments. They are demanding greater transparency and greater communication between all parties to ensure there is greater visibility.
Everybody knows that the demographics in relation to India support a very buoyant and growing long-term real estate market. There is still a huge issue with poverty in the country but there are hopes this will be addressed in the longer term leading to a more even spread of the countries significant wealth. This growing wealth will eventually find its way into the domestic real estate market creating yet more demand, more new projects and greater investment from overseas. Official estimates suggest that the Indian real estate market could be worth in excess of $180 billion by 2020.
Looking to the future
There is no doubt that at this moment in time there are significant concerns regarding the Indian real estate market. However, the election result of 2014 went down well with investors and there is a growing belief that great transparency and regulation will inject more confidence into not only the Indian economy but specifically the Indian real estate market. We can only hope that the political elite follow through with their election promises because if they do there is potential for significant growth in the medium to longer term.
It is interesting to see Wall Street giants effectively ignoring the short term issues and concentration on the longer term.