Real Estate & Infrastructure

Industries : Real Estate & Infrastructure

India is ranked fourth in developing Asia for FDI inflows as per the World Investment Report 2016 by the United Nations Conference for Trade and Development.India is now way more attractive to both global and Indian investors.The global capital flow into Indian estate in 2016 stood at $5.7 billion.Global capital flow into Indian real estate will increase further.. Despite Brexit and uncertainty around the new US President's outsourcing and visa-related policies, private equity activity also looks healthy in 2018 - thanks to a strengthening and modernising economy, and the growing reputation of India as an attractive investment destination.

The construction industry is the second largest industry of the country after agriculture. It makes a significant contribution to the national economy and provides employment to large number of people. The use of various new technologies and deployment of project management strategies has made it possible to undertake projects of mega scale. Recent experiences of several new mega-projects are clear indicators that the industry is poised for a bright future.

The year 2017 as we all know has set a new benchmark for the Indian real estate sector. The implementation of demonetisation in November 2016 had the entire economy reeling until the first quarter of 2017 and the realty segment was not pardoned either, with land sales reaching stagnation due to more involvement of cash transactions. However, this eventually helped reduce land prices thereby making the end products more affordable to the consumers. By April 2017, when the markets were looking to stabilise, RERA and GST were announced in succession which again caused some inertia due to confusion among buyers and developers alike, with both awaiting the final set of RERA notifications/legislation from their respective state regulatory bodies.

India is finally set to get the much-coveted infrastructure status. One crore houses are to be built in rural India by 2019, and this vital segment will now see cheaper sources of finance - including external commercial borrowings (ECBs). Re-financing of housing loans by National Housing Banks (NHBs) can give a further boost to the sector.

Given the Government’s ambitious vision of ‘Housing for all by 2022’, it has a very direct stake in helping the real estate industry get back on track. With rising demand and improving profitability, private players will be more than willing to be a part of the journey to achieve this ambitious mission. There would be increased real estate activity not only in the metros and larger cities but also in Tier II/Tier III cities.

The real estate and infrastructure companies remains positive in many geographies and sectors around the world. As a result, we can expect that generally positive earnings trends should support continued dividend growth and attractive long-term performance potential. Uncertainties related to political and policy changes, monetary policies and interest rates are unlikely to abate in 2018, but improving global economic conditions support positive demand trends for both real estate and infrastructure assets.

Due to positive fundamental trends, there are opportunities in a number of real estate markets and property sectors. Specialty real estate is one segment with particularly strong growth trends due to continuing technological innovation and resulting demand. It includes data centers, biotechnology laboratory facilities and telecommunication towers. Within more traditional property sectors, we expect positive rental growth trends to continue in 2018 for office markets in Sydney, Tokyo and Stockholm, while Paris and Madrid have begun to see rents improve. Residential markets exhibiting strong or improving growth trends include German rental apartments, as well as for-sale residential property in Australia, Hong Kong, Singapore and the United States.

Easily the most challenging area for property fundamentals is retail property. While growth remains moderately positive, online retailing is rapidly changing the way people shop and investors have reacted negatively to uncertainties related to the growing share garnered by e-commerce. As of November 2017, valuations for retail property companies generally appeared cheap but in some cases warranted, in our view. Retail property challenges, however, are leading to opportunities for modern logistics facilities that can accommodate increasing demand for the distribution needs of online retailers. Despite relatively higher levels of new industrial supply in many markets, demand has remained robust in most markets, including the United States, the United Kingdom and throughout the Asia-Pacific region.

Growth prospects for toll road operators have remained positive in a number of markets, including Australia, France, Canada and Brazil. Encouraging traffic growth trends on specific toll roads in these markets should support solid revenue growth. Marine ports are generally posting positive throughput growth, with China port throughput accelerating after a couple of years of decelerating growth, but so far the revenue impact has been more muted. Traffic growth for airports in Europe, Latin America and the Asia-Pacific region has been positive, but signs of deceleration are evident in some markets and trends for retail spending per passenger have not recovered as quickly as investors expected.

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