MUMBAI(December 10, 2013) – Indian cities slipped further in the regional rankings this year, but did manage to retain a position in the Top 25 real estate destinations of the Asia Pacific region. Mumbai and Bangalore have slipped to the 23rd and 20th positions respectively in the list of investment destinations covered by the Emerging Trends in Real Estate® Asia Pacific 2014, published jointly by the Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC). Delhi has maintained its ranking at 21st position while Chennai has made an entry for the first time at 22nd position.
In the previous report of 2013, Mumbai and Bangalore were placed at 20th and 19th position respectively.
These low ratings are attributed to the ongoing economic problems, an uncertain currency outlook following a mid-year plunge in the value of the rupee, and an investment environment widely perceived to be unfriendly to international investors. Still, interest in Indian markets remains high. With national elections looming and reports on the ground suggesting that the tide may be turning in receptivity to foreign investment, many foreign funds are waiting on the sidelines to see what happens, the report added.
Gautam Mehra, Executive Director at PwC India said, “The general slippage of Indian cities in the rankings, coupled with the retention in the Top 25 list, tells the story – on the one hand, there is the negative impact of the combination of market, currency, regulatory and political risk which continues to result in a general sense of nervousness and the tendency of foreign investors to stay on the sidelines, while on the other, the undoubted potential continues to keep interest levels going. The new entrant (Chennai) gives another positive twist to the story. In the backdrop of the outlook emanating from the report, a more conducive and transparent environment will set the ball rolling for attracting greater levels of investment, both foreign and domestic.”
The report stated that overall for Asia, the real estate fundamentals are expected to remain strong in markets in 2014, with stiff competition for conventional assets in prime markets boosting the popularity of niche property sectors and secondary markets for investments.
The report notes that, unlike other asset classes, real estate in Asia “barely flinched” this year in response to the tapering of the U.S. economic stimulus and expectations of higher interest rates. This is due, in part, because of the increase in sovereign wealth and institutional capital being directed to Asian markets, as well as the substantial volume of Asian capital being exported from China, Singapore and South Korea into real estate assets across the region.
“While Asia’s robust market has been accompanied by higher prices and lower yields for core products, investors have reacted not by pulling away from real estate in Asia, but by finding new ways to make the numbers work, including a focus on specialized property types such as senior care or logistics, and on opportunities in emerging markets,” said ULI North Asia Chairman Raymond Chow. “We do expect some headwinds as rising interest rates compress yields further, but overall, we are very encouraged by the optimistic view reflected in the report.”
“If we look at new ways to enhance returns, we can see investors are trying to enter at the development level and an increasing number of co-invested development deals are now being struck,” said K.K. So, the Asia Pacific Real Estate Tax Leader at PwC Hong Kong. “Several large institutional players that have opened offices in Asia in order to gain access to direct deals have opted to co-invest in development sites as a means of securing core assets that would otherwise be unavailable or be too expensive. This is something of a departure from normal practice at institutional funds, but is being driven mainly by necessity. Besides, we also see a trend towards lower opportunistic returns and investors are opting for longer investment windows.”
Emerging Trends, which is being released today in Mumbai and at a series of events across Asia over the next week, provides an outlook on Asia Pacific real estate investment and development trends, real estate finance and capital markets, and trends by property sector and metropolitan area. It is based on the opinions of more than 250 internationally renowned real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.
Top Investment Markets for 2014
The generally positive outlook for many markets throughout the Asia Pacific region is highlighted by the re-emergence of Japan (after a five-year absence from the top rankings) as a favored market for investment and development. The country is one of the largest beneficiaries of capital flows from other regions within Asia, notes the report. Its increasing popularity is attributed to the government’s massive economic stimulus plan, which has resulted in a flurry of property purchases in anticipation of rapidly rising prices. In addition to Tokyo, secondary cities in Japan, including Osaka, Fukuoka and Sapporo are gaining appeal among investors, notes the report. Outside of Japan, the survey found continuing interest in assets located in Asia’s emerging markets, including Jakarta and Manila. The reason, says Emerging Trends, is that as “cap rate compression continues to squeeze returns, and with higher interest rates seemingly just around the corner, investors are drifting to markets that can provide the kind of returns they are unable to tap elsewhere.” The five most favored markets for 2014:
Investment Prospects by Property Type
About the Urban Land Institute
The Urban Land Institute (www.uli.org) is a global nonprofit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Established in 1936, the Institute has more than 30,000 members representing all aspects of land use and development disciplines.
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