The past year has been a remarkable year.
2019 has been a Substantial year for Indian real estate, with many milestones like the first REIT launched in the month of March, the continued growth of exciting new sectors like co-working and managed offices, and consolidation of the market into a more structured, transparent investment space after a transition period in the age of RERA. Not only return from a real estate exceeding riskier assets, but they are also becoming more flexible, combining a wide-range of advantages with different securities. This mixture of stability and flexibility has greatly boosted the attractiveness of real estate, the world’s largest asset class.
Be it technological, financial, regulatory, or consumer-driven change, there have been many exciting developments in 2019 that promise a positive outlook for real estate. This article features 5 trends with the potential to drive inordinate change in 2020 and beyond.
Features responsible for potential change.
SEBI-regulated investments: Before RERA, pre-launch sales were an avid source of early-stage capital for real estate development. While beneficial, these were uncontrolled opportunities with no level of structure or transparency. Today, there has been a remarkable shift toward regulated investments for the early, pre-approval phase of a project. These investments generally use an AIF structure and, in some cases, the PMS route. Exits, specifically for rent-yielding properties, have started moving to the REIT structure. We forecast that these trends to continue to transform real estate over the next several years as the industry completes its transformation from its “wild west” reputation to a stable, transparent, and regulated one. Professionally run developers will find it easier to boost these sorts of institutional capital and grow their market share.
Sophisticated offices and homes: Globally, co-working and managed offices are the fastest-growing parts of commercial real estate. These offices allow clients to focus on their core business activity and leave facility management and services to a specialist operator hired by the developer. In India, this segment is set to achieve 10 million square feet in record time, with more than a 10% market share of total office leasing already. Similarly, the more elementary category of co-living, which provides managed homes, grew by 100% in 2018 and has since attracted a large number of players. While the demand for managed properties is clearly growing, it is telling that only 40% of the more than 850 co-working spaces are actually profitable, and co-living faces even tougher unit cost economics. We expect these sectors to continue to grow but the weaker players will be stirred in the Darwinian struggle for survival.
Specialization: Each industry tends to applaud either vertical integration or increased specialization when the competition increases, and the field of real estate is no different. Where once developers interacted in pretty much all types of real estate developments, higher skills will be required in the future as competitive pressure makes it almost difficult to succeed as a jack of all trades. We can forecast to see developers specializing in retail, logistics, senior-housing, student-housing, medical offices, and such other important sectors and these specialist players are likely to significantly increase their market share within these segments at the expense of the generalist developers. A lot of the growth over the next few years will be cause by these emerging sectors, and a lot of the profits from this growth will be utilized among firms with the right set of expertise and experience.
Global-scale projects: As capital-raising advances from informal HNI networks to institutional funding, the capital that can be raised for a single project will continue to witness a strong increase. This will allow deal amounts to increase, which means there are likely to be Gigantic real estate developments, whether commercial property, residential property or office space. With large interstate migration to cities like Bangalore, Pune, Gujarat, Hyderabad and Delhi, India’s growing urban centers will benefit from these huge developments that will have the scale to provide world-class amenities such as sporting and entertainment facilities housed inside the developments. These projects will be able to invest in aesthetics, landscaping, Premium common spaces, and state-of-the-art design to produce a self-contained oasis within crowded cities and business hubs.
Innovation with Technology: Just like many industries, technology has had a positive impact on real estate. Digital marketplaces have transformed real estate investments and enabled investors to profit reliably, soundly, and conveniently from the sort of exclusive property assets that used to be the domain of large institutional investors. Technology is also revolutionizing construction, where the pressure to complete projects quickly is constantly growing for better construction methodologies, such as prefabricated construction technology. These technologies are especially important in a country like India where millions of homes and offices will be required in the years to come as the process of urbanization continues.
Conclusion: This is a unique period for Indian real estate. It is being transformed in various ways, whether it be in financing, construction, specialization or scale. Developments, which used to be one-off projects, are being transformed into assets where continuing services are required. There are a host of new sectors like senior living, student housing, managed offices and logistics parks that are growing rapidly. New avenues are being created to profit from all this, such as AIFs and REITs. Technology platforms are greatly simplifying the process of finding the best investment opportunities, and regulations are creating a culture of transparency. The next few years look promising for the real estate industry, especially for those firms who have the expertise to add value and capitalize on these opportunities.
We at Shree Balaji Group are accustomed to providing nothing but the best to our customers. Luxury, Location & Convenience at your doorstep.
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