December 05, 2017

 

Our expert believes that the institutional reforms introduced will go a long way towards reviving the sector and taking it to greater heights.

After nearly a decade long era crippled with economic and political uncertainty, the global economy has stabilised and is showing healthy signs of recuperation. A reflection of the resurrected economic environment came across in the International Monetary Fund’s latest World Economic Outlook (WEO). The projections indicate that the global GDP would grow above 3.5 percent per annum over the next five years.

India: Resurgence of the gem of emerging markets

Post the financial crisis in 2008, developing countries like Brazil, Russia, India, China and South Africa (BRICS) among others played a crucial role in driving the global economy forward. But over a period of time, unaddressed structural problems coupled with high currency volatility in these markets forced investors to move their money back to developed markets. While Brazil, Russia and South Africa were seriously affected by collapse in commodity prices and political instability, policy paralysis and worsening fiscal metrics crippled India’s growth story. But the tables have turned. With a stable government having comfortable majority in the parliament, the confidence has returned. India has now become one of the fastest growing economies in the world and would retain that status for the foreseeable future. India is projected to grow at the rate of more than seven percent, according to the IMF’s world economic outlook forecast. Its economic robustness is also substantiated by the performance of its currency. In addition to the improving macros, a slew of policy reforms taking place in the country have wooed foreign investors back to its shores too. The new government has implemented several reforms to streamline and formalise the economy across all sectors. The recent roll-out of the Goods and Services Tax (GST) could be the cornerstone in this endeavour too. The strong fundamentals, robust economic growth, political stability, controlled inflation and the lower interest rate regime have improved India's chances of a sovereign ratings upgrade within the next two-years.

Indian real estate: A new paradigm on anvil

Real estate has been a key driver for the economy. However, poor transparency in the sector and dwindling consumer confidence had put the industry under strain in the past three to four years. The recent introduction of the Real Estate (Regulation and Development) Act, 2016 has pumped in a new lease of life into the sector. This is expected to weed out unorganised players from the industry and whip up buyer's confidence, thus bringing buoyancy back into the sector. The subsequent stride in re-engineering momentum back into the sector was the government's push towards 'affordable housing'. By giving it infrastructure status, the government would attract private developers towards these projects. At the same time, home loan sops and interest subsidies under the Pradhan Mantri Awas Yojna would fire up the demand for these homes. These reforms will go a long way in enticing the institutional investors to invest in this sector.

Are investors responding?

The government's emphasis on housing and its efforts to mitigate the risks in the real estate sector by introduction of RERA has not gone unnoticed by foreign institutional investors and also the sovereign and pension funds. A large number of these investors and funds has made changes to the portfolio allocation strategy allowing investment exposure to Indian real estate. The pension and private equity funds are investing in commercial assets (office spaces and malls) and also in under-construction residential properties. Not only foreign investors, but also domestic investors are raising funds to invest in this sector. Therefore, the future only looks optimistic.

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Source: magicbricks.com