HNIs prefer commercial over residential owing to higher yield of 7%-8%

HNIs prefer commercial over residential owing to higher yield of 7%-8%
27/02/2019 , by , in News/Views

The real estate sector in India will continue to grow at a rapid pace owing to increasing income, urbanization, and economic growth. As per secondary sources and Colliers Research, the real estate sector in India is expected to reach USD1 trillion by 2030 from USD120 billion in 2017, and contribute 13 per cent of the country’s GDP by 2025. 

“The average disposable income per annum for middle-income group has grown around 9% across 7 major cities in India over the period of 2014-2018. However, the average growth in residential property prices was less than 2% during the same period. This depicts the increasing affordability of residential spaces for the middle-income group of metro cities. The HNIs have limited their investments in the residential sector owing to lower returns. Instead, they have been actively investing in commercial/retail spaces, that gives them a higher yield of 7%-8%”, says Sanjay Chatrath, Executive Director (North) at Colliers International India.

Some of the real estate sectors to watch for in Q1 2019 include:

Office Absorption

The gross leasing activity in 2018 across seven major cities in India was 50 million sq ft. National Capital Region (NCR) recorded the highest leasing volume in the past eight years and the trend is expected to continue.       Driven by increased absorption in the peripheral locations, Bengaluru witnessed 14.1 million sqft of leasing activity followed by NCR (10.0 million sqft) and Mumbai (7.6 million sqft). The top three sectors contributing to gross leasing were IT/ITeS (43%) of the total, flexible workplaces (14%) and BFSI (12%). About 26.3 million sq feet of new supply was added in 2018.  We expect substantial new supply in Bengaluru, the NCR and Hyderabad in 2019 as developers respond to steady demand. On the demand side, the technology sector will likely be the key driver of demand followed by the banking, financial services and insurance, flexible workspace and consulting sectors.

Institutional Investors

Large corporate and institutional investors are feeling confident about investing in India.The overall investment inflow in 2018 in Indian realty industry recorded was USD 6.5 billion, which is a 55% YoY increase compared to 2017.       Some of the institutional funds including Blackstone, Brookfield, CPPIB, GIC of Singapore, Warburg Pincus, Abu Dhabi Investment Trust have been investing heavily in India.

Commercial real estate will continue to enjoy leading position when it comes to the investment share over the next three years. Warehousing has also gained traction and last 2 years have seen around USD2 billion investments across the country which is expected to rise in the coming years.  Moving ahead, we will see increase of investments in alternate asset classes such as student housing, retirement homes and co-living to improve in the coming years as these concepts gain acceptance.

Residential- Affordable Housing

The residential market took a hit in the past few years, but 2019 and future for residential looks positive.  With the recent announcements, the segment will witness investors and developers moving towards affordable housing, student housing, and co-living.     About 40% of all the new launches in 2018 were under the affordable segment. Cities such as Bengaluru, Chennai, Hyderabad, Kolkata and NCR witnessed maximum launches in the affordable segment that is below INR5 million. Mumbai on the other hand witnessed more launches in the mid segment housing, in the range of INR 5-10 million.

Industrial & Warehousing:

The Indian logistics industry is pegged at USD160 billion in 2018 is likely to touch USD215 billion in 2020 with the implementation of GST. The sector has grown at 7.8% annually and is expected to grow at a CAGR of 10.5% till 2020. The demand for large warehousing spaces is likely to see steady increase as occupiers move out of their smaller warehouses and consolidate their activities in larger facilities. As more and more companies streamline their logistics networks, the unorganized players or smaller organized players will consolidate or sell their assets to larger ones. The industry is expected to witness a structural shift over the next 3–5 years.

About admin