Realty to Buck Brexit

By Vinod Behl

Unlike the Lehman crisis of 2008, Indian real estate, though in a slowdown mode , is well prepared to bear any shocks, arising out of Brexit.

With healthy foreign exchange reserves and lowering fiscal deficit, India is better placed than other emerging economies, with Indian rupee being relatively better performing currency among emerging nations. Indian stock market has absorbed Brexit shock and is likely to be less affected in the long term.In its latest Asia Special Report, Nomura says that though India is not immune to Brexit effect, yet, the economic impact of Brexit should be small to India, in relation to other open economies in Asia. And  investment bank Credit Suisse also concurs that in case of any adverse fallout of Brexit, India and China, will have least impact..The recent statement of World Bank President, Jing Yong Kim, is no less reassuring. He says India has dealt with the impact of Brexit quite creditably and come out of it relatively well.

Talking specifically about real estate, global property consultancies are of the opinion that the real estate sector in India will continue recovering, on the back of resilient economy, strong capital inflows and reforms. Says Anuj Puri, Chairman, JLL India, “Brexit will not disturb the recovery much, since Indian office market leasing is dependent only by 5-7 percent on UK- based companies and investments and activities of PE funds from EU countries is more in India than in the UK. However IT sector, a leading contributor to the growth of office realty, may face some heat due to EU slowdown as some big IT companies like Infosys, TCS, HCL have exposure to UK.

The commercial real estate that has already recovered slowdown to a large extent, has got further boost with liberal FDI norms and far reaching reforms like REITs.In fact with taxation and other related sops, REITs have been made much more attractive for foreign investors.With growing demand for commercial buildings, office spaces, shopping centres, warehouses, REITs are preferred investment vehicles globally and with quality REIT-compliant stock in India, the interest of global investors in Indian property has increased. According to RICS & Cushman & Wakefield report, Indian commercial real estate offers investment opportunity worth $ 43-54 billion across top 8 cities by way of REIT- ready stocks. According to JLL, 80-100 msf of office space with at least 60000 crore may qualify to be included under REITs with potential to guarantee annual rental of 6000 crore.

The retail real estate is also looking up to face any challenges from Brexit. According to 2016 Global Retail Development Index (GRDI), with pick up in GDP and riding high on FDI reforms, India has jumped 13 positions from last year to rank second among 30 developing countries this year.Logistics sector, which is a significant contributor to commercial real estate, does not see any impact on its business from Brexit. Especially as a spate of reforms like 100 percent FDI in e- commerce, 24X7 retail operations, Make in India with focus on manufacturing, boost to infrastructure through industrial investment corridors and positive investment climate created by GST Bill, has given boost to this sector, poised to reach 125 msf by 2021. The latest World Bank Report on global logistics rankings couldn’t have come out at a more opportune time, with India jumping 19 places to occupy 35th rank.This has boosted the confidence of global investors in India’s logistics sector which attracted 1438 crore of private equity investment last year.

With the recovery of the commercial real estate, the revival of residential real estate has also picked up pace with various reforms (especially real estate regulation) and other investor- friendly  policy initiatives including measures to make tax regime more simpler and predictable.All these measures have brought the much needed transparency in property transactions. It is clearly reflected in JLL’s Global Real Estate Transparency Index (GRETI) 2016. India has made improvements in overall transparency scores across all markets , achieving higher ranks for tier 1-2 markets. According to Anuj Puri of JLL, improved market fundamentals, policy reforms, liberalization of FDI into realty sector and strengthening of information in the public domain, were main influencers, along with digitisation of land records and opening up of REIts”. JLL expects India’s transparency index to improve further with the implementation of Real Estate Regulation Act (RERA)

Brexit is a blessing in disguise for Indians keen to invest in property in UK, especially London’s housing market, which had been a major attraction for Indian investors.The weak British currency and sluggish property prices, may well work to the advantage of Indian property buyers. Otherwise also, the investment in property in UK, is not only a good hedge but it also gives attractive return. With buyers pulling out of transactions due to market uncertainty, one could look for good deals there , especially in London. Global  property consultancy, JLL expects more buyers from India investing into property market of Britain. ” The combination of expected interest rate cut and devaluation of Pound, should attract Indian investors especially as London has always been a favourite destination for Indian property buyers. It augurs well for Indian investors to make their move now”‘, says Shishir Baijal, CMD, Knight Frank India.

Economists and investment experts believe that considering relatively sound Indian economy and good growth prospects, Brexit impact may well be muted. According to Arvind Subramanian, Chief Economic Adviser, if we look at the data, India seems to have emerged as a safe heaven for investors. And with reform process keeping a good pace amid sound prospects of monsoon this year, Indian economy may well further gain stability, giving boost to real estate, negating any adverse impact of Brexit.

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