India’s Biggest Cities Fall in Rankings of Asian Property Markets

Top three Indian metro cities drop in rankings for investor prospects due to GST and demonetisation.

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The top three Indian metros – Mumbai, Delhi and Bengaluru – aren’t attractive for investors.

That’s because demonetisation and the Goods and Services Tax rollout have created liquidity issues for the real estate sector, impacting investment and development opportunity in the cities, PwC said in a report. As a result, the three cities slipped on the investment prospect rankings for 2018.

Bengaluru, ranked No 1 for 2017, dropped to the 15th spot. Mumbai slid from the second position to 12, while Delhi fell eight spots to 20.

The residential sector continues to suffer after last year’s note ban and Real Estate Regulation Act, PwC’s 'Emerging trends in real estate – Asia Pacific 2018' report said. Commercial property offers an opportunity, attracting institutional and sovereign wealth capital.

Real estate investment rankings.
Real estate investment rankings.
(Photo: BloombergQuint)

Mumbai fared better than the rest of the Indian cities. Sales in the country’s financial capital has been driven by demand in co-working, manufacturing, and services companies. Office vacancy rate at around 17 percent continues to be high, and with a pipeline of incoming supply totalling about 40 percent of the existing stock, fundamentals would appear to be negative. Yet, any new supply is quickly taken up and rental growth for those properties remains strong, the report says.

Bangalore has driven the investors’ interest because of its emergence as a centre for the outsourcing industry. However, automation and artificial technology could create a drag on demand for back-office and customer service functions, the report said.

Delhi remains unpopular among investors, “mainly due to an emphasis on development in the residential sector, which has recently been in a downtrend,” it said.

The PwC survey found that retail assets are attracting a lot of interest, especially from private equity firms.

The residential segment continues to be an overhang because of the oversupply in the market, and the effects of demonetisation and GST. The oversupply in luxury segment is also causing the foreign investors to stay away, Abhishek Goenka, PwC India leader, real estate tax practices, said.

There are bright spots as well. “Investments, specifically into affordable housing in the country, continue to be strategic in nature and offer massive scale of opportunity, a factor that makes it especially popular for funds deploying large capital," Goenka said.

Yet, the availability of land at affordable prices and no single-window approvals, and time overruns are some of the key concerns, the report said.

"With most high-quality pre-existing assets already accounted for, international funds are turning increasingly to build-to-core projects, affordable housing and other opportunistic investments," Bhairav Dalal, PwC India partner for real estate tax practices, said.

(This article was originally published in BloomberQuint.)

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