Commercial, warehousing the flavours of 2018; affordable housing’s continuing allure
Sluggish demand along with bleak returns on investment has dented the previously glowing charisma of Indian residential real estate in the preceding two to three years. The cascading effect of demonetisation, implementation of RERA and GST further dampened investment traction in this segment in 2017, leading to a decline in average prices between 5-7 per cent during the period.
Although the tail-end of 2017 showed some signs of revival in the sector and there was an uptick in sales of ready-to-move-in properties, the multitude of existing challenges will continue to be felt in 2018. The huge unsold inventory on the market and the possibility of distress sales in the offing will limit the possibilities of any significant price appreciation in near-term.
During the year 2017, private equity (PE) investments into the residential asset class fell significantly and witnessed a loss of around 25 per cent in overall share compared to the previous year. Also, for the first time in last three years, it lost its #1 position in PE investment share. The steady fall in appreciation and persistent gloom on the residential property market have caused PE investors to shift their focus towards other asset classes. Primarily on their radar are commercial real estate in the form of office (predominantly IT and ITeS) and retail spaces, and industrial properties in the logistics and warehousing domain.
The investment trend in last four to five years depicts a restrictive approach of investors for the residential property asset class. Specifically, a major portion of PE monies invested in this class has been in the form of structured debt, while investments in pure equity form have fallen below 10 per cent. Additionally, it has been observed that recent investments were largely focused on refinancing existing debts and mostly concentrated on projects in advanced stages of construction.
This trend is very likely to continue in the near future as well, largely due to the upsurge in demand for ready-to-move-in properties which offer better safety for investors. Based on the aftermath of the most market developments, it is possible to identify certain notable trends for PE investments in 2018: