India’s fast-growing middle class consumer base and less challenging position amid trade wars are providing attractive opportunities for some of the world’s largest real estate investors, according to executives speaking at the Mingtiandi Singapore Forum this week. Watch the full recording>>
India is having its “moment in the sun” with an explosion of investment across real estate asset classes, said Benjamin Chow, head of real estate research for Asia. The country saw a record $7 billion in property investment last year, which was around the median across Asia Pacific’s major economies, according to data from the index and analytics firm.
“Over the last five years or so, we started to see the emergence of Indian REITs and new investor groups coming from various geographies across the world. There is more interest from European investors. Even on my trips to Japan and Korea, we have a lot of clients asking us about the Indian market, which is quite different from 10 to 15 years ago,” said Chow.
Booming Tourism
Clarence Tan, senior vice president for development in Asia Pacific at Hilton, sees substantial growth potential in India, noting that the country’s middle class, which currently accounts for 31 percent of its 1.45 billion population, is expected to expand to about 60 percent of the citizenry in the next two decades.
Clarence Tan of Hilton at the Mingtiandi Singapore Forum
“We honestly believe that when domestic tourism is strong, international arrivals will follow. And that domestic tourism will also drive overseas, which is why Hilton is very focused on building our base in India,” Tan said.
The American hospitality group has about 60 hotels in development in India and aims to expand that number to 300 in the next ten years, according to Tan.
Rising Private Wealth
A shift of families from multifamily homes to individual family homes since the Covid-19 pandemic has boosted home sales and driven demand for borrowing, while India’s tightening of bank lending following a regulatory crackdown in 2016 offers opportunities for private equity firms to provide project credit to residential real estate developers, said John Dixon, a member of the management team with the private real estate group for Asia at Swiss private equity firm Partners Group.
“We see this as a particular opportunity given it is a senior-secured investment with a fairly solid risk-adjusted return. And the market seems to be printing 18 percent in local currency, which we find very attractive,” said Dixon.
Varun Malik, managing director and head of capital markets for Asia Pacific at real estate advisory firm Anarock has observed India’s licensed asset management companies increasingly tapping into the private wealth sector, which is driving more investment activity in residential real estate.
“Real estate tends to be a big beneficiary of that. There’s a big affinity for residential because that’s the first asset class wealthy individuals tend to look at,” he said.
Chow from MSCI has also observed the rise of private wealth as a factor in India’s real estate investment. MSCI launched an index earlier this year to measure the returns of buy and hold strategies in India and found that the return on direct property investment in the country stood at 13 percent to 14 percent last year, which was “quite remarkable,” said Chow.
Supply Chain Hotspot
Amid the current trade war, India stands to “benefit somewhat relative to other markets”, as the country becomes a supply chain de-risking destination, said Partners Group’s Dixon.
“It’s emerging that India has a huge importance to the US in general. What we’re seeing is a lot of tenants who had part of their supply chains in places like China and Vietnam may choose to move more of that in a meaningful way into emerging economies, certainly India being a huge beneficiary of that,” he said.
“And if someone asks me when do you plant a tree, I think, for India investing, certainly the time is now,” Dixon added.
A Panel in Pictures
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