As global investors steadily raise their allocations to Asian real estate and valuations continue to rise, big institutions are increasingly eyeing opportunistic strategies in emerging markets, not least in India, one of the hottest property markets right now.
Together with Vietnam, India is regarded as the most popular emerging market destination in Asia for real estate investors, according to a report published in late March by PwC. (China is viewed as a core property market.)
That dovetails with property services firm CBRE's forecast two months earlier that $3 billion of capital is likely to flow into Indian property between 2018 and 2020, largely into opportunistic strategies, and is supported by the activity of some leading European and North American institutional investors.
“We see India as a growth area and have been focusing on it in the past couple of years," Graeme Torre, Asia-Pacific head of private real estate at Dutch pension fund manager APG Asset Management, told AsianInvestor. "We’ve built our exposure there and are very pleased with the way our partnerships have come together and how our assets there have performed.”
Torre cited a deal APG struck in late 2016 with private equity firm Xander Group to co-invest $450 million in Indian retail property. He also suggested that APG's Asian real estate investments could grow at a faster clip than its global property allocation, which is set to increase to 15% from 10-12%.
However, Torre did not provide figures showing how APG's overall India portfolio has expanded.
Last year $3.5 billion of income-producing properties were traded in India, according to Real Capital Analytics. This is still well below the volumes seen in the most liquid markets, such as Hong Kong (where $21 billion of real estate changed hands last year), but it is rising (see table).
“From a property investment point of view, India has taken some big steps forward and really made its presence felt in the past two or three years,” said Rushabh Desai, Asia-Pacific chief executive of Allianz Real Estate, the insurer’s property investment arm.
Among the catalysts stimulating increased capital inflows into India are regulatory enhancements such as the Real Estate (Regulation and Development) Act 2016, which seeks to protect home-buyers and help boost investment in property.
Also helping are marked improvements in the ease with which business is done in India, Desai said, and the passing into law last year of a new Goods and Services Tax, which has "opened up the logistics sector for the next wave of investments" and, by extension, created new investment opportunities in industrial property.
With the value-added taxes imposed by India’s 29 states now integrated under a single national system, tax enforcement is no longer needed at state borders, so most of these checkpoints have now been shut, increasing the efficiency with which goods can be transported around the country.
“There was a lot of reluctance 10 years ago about investing in India,” Desai said, “but now many foreign institutional investors have gained comfort [from] the regulatory framework and the improvement in infrastructure.”
Allianz RE has €40 billion ($49.2 billion) of property equity under management, around 5% of which is in the Asia-Pacific region, a proportion Desai said could double in the next three to four years. With that in mind, it quadrupled its regional team of investment professionals to eight last year.
Allianz RE made its first move into direct property investment in India in October last year, when it announced a platform partnership in October with local developer Shapoorji Pallonji Group. The platform has $500 million of equity that will invest in commercial real estate, with Allianz owning 50% of the fund and other institutional investors the rest.
Canadian pension funds, already very active property players in Asian property, are also boosting their focus on India.
Ivanhoé Cambridge, the C$60 billion-real estate unit of Caisse de Depot et Placement du Quebec, aims to more than double the C$800 million ($631 million) it has already committed to investments in India, its president Daniel Fournier was quoted as saying in late February.
Ivanhoé Cambridge invested a reported $400 million in October in a new logistics venture known as Logos India, alongside QuadReal Property Group. The venture focuses on developing logistics facilities in targeted cities across India and will have up to $800 million in investment capacity.
And in May last year Canada Pension Plan Investment Board, with $337 billion under management, said it would invest $500 million in a joint venture with Indian property developer IndoSpace to buy and develop logistics facilities.
More niche assets in India are also attracting capital inflows. Investors are eyeing data centres there (as well as in China, Hong Kong and Singapore), said the PwC report, noting that such assets have projected internal rates of return of 13% to 15%.
Affordable housing is another sector attracting interest in India, added PwC. With government-backed programmes targeting the creation of millions of new units, affordable housing projects were granted “infrastructure status” by the central government in early 2017, providing access to lower financing costs and tax exemptions, and boosting interest from institutional investors, the report said.
In addition, after several years of speculation, India is expected to launch its first real estate investment trust any day now. By offering a route to the Mumbai stock exchange, this will provide a long-awaited exit strategy for investment funds now active in the market or thinking of entering, the PwC report said.