The Next Billion Dollar Baby
By property vertical
Indian Real Estate: Transparent Market Top Priority
India’s real estate industry has made impressive strides in becoming a more transparent sector over the last two years. Along with other countries like Brazil and Japan, India, has reported significant improvements on a few standardised parameters, moving up from the low transparency markets in 2004 to the semi-transparent markets list in 2006.
According to the latest edition of the Jones Lang LaSalle’s (JLL) Real Estate Transparency Index (RETI), a biennial survey and the only index that tracks transparency in commercial real estate across 56-markets worldwide, it attributed heightened cross-border investment interests and better business environment as the main factors behind the change. This could spur potential multi-billion dollar investments in the coming months.
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JLL’s index slots world markets into five tiers: opaque, low-transparency, semi-transparent, transparent and high-transparency. Its methodology addresses five categories of transparency, which are investment performance indices, availability of market fundamentals data, listed vehicles financial, regulatory and legal factors and professional standards and transaction process.
Manisha Grover, Head, Strategic Consulting & Research, JLL India believes many domestic real estate companies are beginning to understand transparency, since they need to scale up in a growing market, and they need equity to do that.
Notwithstanding some execution flaws, India’s legal-regulatory framework, professional standards and transaction processshould count among the positives, while the main transparency concerns centre on availability of fundamental data on demand-supply situation, for instance.
The RETI allows MNC occupiers with comparison costs of occupation and better structuring of commitments and exit routes. The index helps guiding risk premium assessment in the case of investors.
India figured among the top 10-improved markets jumping one full tier, and is currently placed ahead of China. This augurs well for investments i.e. fairly committed ones estimated at around $4-billion at present, waiting to pour into the domestic real estate business, as 9-11% yields from emerging markets like India are far better compared to 4-6% from stable and high transparency markets like Hong Kong or the USA.
Ms. Grover says India is expected to do even better in JLL’s next edition to be published two years from now, as by then it will have more companies listed, which will help in matters like financial disclosures and corporate governance.
To put the investment possibilities in perspective, cross border real estate investments in Asia-Pacific region in last year was pegged at $65-billion, with India hardly figuring in the action.
While, China might still pip India in attracting regional investment flows, such as, capital migrating from Hong Kong to mainland China, a more transparent domestic real estate market will place it better in swinging investments from USA and Europe.
