A week ago, Britons voted by a slim margin to quit the European Union, of which they have been part of for several decades now, sending shock waves across the European community and across the world. Different economies have reacted variously, and overall there seems to be a mood of uncertainty pervading across the globe on what this would imply and mean to the plethora of market groupings, blocs and trading zones prevalent across continents on the medium to long term. India, however, though in a slowdown mode, seems well prepared and appropriately cushioned to take the shocks arising out of BREXIT, unlike during the Lehman crisis of 2008. Vinod Behl presents you with his analysis …
With healthy foreign exchange reserves and a fiscal deficit that is going down, India is better placed than most other emerging economies, with the Indian rupee proving to be a relatively better performing currency vis-a-vis those of the other emerging nations. The Indian stock market too has managed to absorb the BREXIT shocks and seems likely to be less affected in the mid to long term. Nomura, in its latest Asia Special Report says that though India is not immune to the BREXIT effect, yet the economic impact of BREXIT should indeed be small to India, in relation to other open economies of Asia. And investment bank Credit Suisse also concurs that in case of any adverse fallout of BREXIT, India and China will have the least impact. The recent statement of the World Bank President, Jing Yong Kim, is no less reassuring. He avers that India has dealt with the impact of BREXIT quite creditably and has come out of it relatively well.
Talking specifically about real estate in general and the Indian real estate sector in particular, global property consultancies are of the opinion that the realty sector in India will continue recovering on the back of a resilient economy, strong capital inflows and reforms. According to Anuj Puri, Chairman of JLL India, “BREXIT will not disturb the Indian recovery scene 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 are more in India than in the UK. However the IT sector, a leading contributor to 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 market that has already recovered from the slowdown to a large extent has got a further boost now, with liberal FDI norms kicking in and far-reaching reforms that have seen the arrival of REITs. In fact, with taxation and other related sops, REITs have been made much more effective and attractive for foreign investors. With growing demand for commercial buildings, office spaces, shopping centres, warehouses etc., REITs are the preferred investment vehicles globally – and with quality REIT compliant stock in India, the interest of global investors in Indian property has increased manifold. According to RICS and the Cushman & Wakefield report, Indian commercial real estate offers investment opportunities worth approximately US$ 43-54 billion across the top 8 cities by way of REIT ready stocks. And according to JLL, 80-100 million square feet of office space, with at least a 60,000 Crore rupee value, may qualify to be included under REITs with the potential to guarantee an annual rental value of at least 6,000 Crore rupees.
The retail segment of the Indian real estate market is also looking up to face any challenges from BREXIT. According to the 2016 Global Retail Development Index (GRDI), with a pick up in the GDP and riding high on FDI reforms, India has jumped 13 positions from last year to rank second among 30 developing countries this year. The logistics sector, which is a significant contributor to commercial real estate, also does not see any adverse impact on its business from BREXIT. Especially as a spate of reforms like 100 percent FDI in e-commerce, 24×7 retail operations, Make in India with full focus on manufacturing, boost to infrastructure through industrial investment corridors, and the positive investment climate created by the GST Bill, have all given an immense boost to this sector, which is poised to reach 125 million square feet by 2021. The latest World Bank Report on global logistics rankings couldn’t have come out at a more opportune time, which shows that India has jumped up 19 places to occupy the 35th rank. This has boosted confidence of global investors in India’s logistics sector, which attracted INR 1438 Crore of private equity investment last year.
Along with the recovery in commercial real estate, the revival of residential real estate has also picked up pace fuelled by various reforms (especially real estate regulation) and other investor-friendly policy initiatives including measures to make the tax regime simpler and predictable. All these measures have brought in the much needed transparency in property transactions. This 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 the realty sector and the strengthening of information in the public domain were main influencers, along with digitisation of land records and the opening up of REITs”. JLL expects India’s transparency index to improve further with the implementation of Real Estate Regulation Act (RERA).
BREXIT has come as a blessing in disguise for Indians keen to invest into UK property – especially London’s housing market which had been a major attraction for Indian investors. The weak British Pound Sterling and sluggish UK property prices may well work to the advantage of Indian property buyers.
Otherwise as well, investing into property in the UK is not only a good hedge butis also expected to give attractive returns. 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 the property market of Britain. “The combination of expected interest rate cuts and devaluation of the British 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 of Knight Frank India.
Economists and investment experts believe that considering the relative soundness of the Indian economy and its good growth prospects, the impact of BREXIT may well be muted. According to Arvind Subramanian, the Chief Economic Adviser, if we look at the data India seems to have emerged as a safe heaven for investors. And with the reform process in the country keeping good pace amid sound prospects of a favourable monsoon this year, the Indian economy may well gain further stability, giving a big boost to real estate and negating any adverse impact of BREXIT.