Since the global financial crisis, aggregate outflow of capital from Asia to property markets in the rest of the world has risen sharply to reach $58.9 billion in 2016 while the inflow has stagnated at under 30 per cent of this level, according to the Colliers International's Asia Property Research Report. This heavy investment outside Asia has been led by mainland Chinese groups, which represented 43 per cent of the Asia-to-global flow last year, and focussed on the U.S. market
"Despite firm near-term US economic prospects, Colliers International expects slower RMB depreciation and political pressures to cause Chinese investors to shift towards Asian markets from 2017. The economic environment in the Asia-Pacific looks mostly healthy as we move into 2017. India is achieving real GDP growth of 7 per cent y-o-y, and a firm investment demand," says the report on Asia Property Research. It further adds that it may be a fantasy to expect the Asian property capital flow to reverse in 2017: Outflow should slow, but inflow may only rise slowly. Asian property investors may see particular investment opportunities in China, Hong Kong, Singapore and India over the medium term.
Commenting on the development, Surabhi Arora, senior associate director (research) at Colliers International India, says, "The strong economy, with above 7 per cent growth in the coming year, controlled inflation to close to 4 per cent on a sustained basis, and proactive policy initiatives by the government are likely to improve India's attractiveness to investors. With a number of Chinese investors scouting for opportunities in the Indian market, the capital flow in real estate is likely to increase in the coming years."
The following key opportunities exist in the Indian realty market:
Office market: Demand for office space should remain strong in the next few years across technology-driven markets such as Hyderabad, Bengaluru, Pune and Chennai. Investors should look at these markets to invest in quality buildings. However, as most of the inventory is strata-sold and there is limited availability of Grade A commercial assets, investors may look to invest at the land stage and build the Grade A assets along with developers.
Industrial property market: Industrial property only accounts for 9 per cent of the total property transaction volumes in Asia. But going by the report, there is ample scope for this segment to grow. While the economic growth in Hong Kong has been accelerating, Singapore economy picked up pace only in late 2016. Overall, prospects for industrial property in Asia in 2017 seem cautiously positive, but the threat of high tariffs on Asian imports by the current US administration spells risk.
Over the medium term, the flagship programme of the Narendra Modi government to boost India's image as a global manufacturing hub, combined with the opening up or relaxation of barriers to foreign direct investment in several sectors, should create new opportunities in the industrial property space. Recently, the government has identified five main industrial corridors that are designed to be the epicentre of its industrialisation strategy. The government is also planning to create 100 "smart cities" along these corridors to support industrial development.
Residential market: In India, in the near term, market confidence has been adversely impacted by demonetisation. However, mid-segment projects with realistic pricings are enjoying a fair amount of success in both primary and secondary markets. The Indian government has also granted infrastructure status to affordable housing in this year's Union Budget. As a result, this segment of the property market is eligible for various tax incentives and cheap funding. To give a demand-side push, the government has also provided interest rate subsidies to buyers. So investors may look to enter this segment to reap an early-mover advantage. They can also look at bulk buying in under-construction residential projects in metros such as Mumbai and Delhi-NCR. These cities have huge unsold inventory in under-construction projects, and investors can receive attractive discounts. Looking ahead, new regulations and probable cuts in interest rates should allow sentiment to pick up steadily over 2017.
Other findings of the report state:
Asian investors continue to prefer office property, followed by hotel, over retail, land, apartment and industrial property outside their own regions. Asians have favoured office property for the past eight years. In 2016, total investment in non-Asian office property amounted to $25.2 billion, about 43 per cent of the aggregate outbound capital.
U.S. investors have been the largest source of inbound capital for the past four years, investing at least $5 billion in Asia each year and accounting for 44 per cent of the aggregate inbound investment of $16.2 billion in 2016. The inbound capital flow is, however, dwarfed by the outbound capital flow.
China overtakes Japan to become the Asia-Pacific's top investment market. Total APAC property transactions for China in the year 2016 stood at $36.5 billion, a year-on-year rise of 10 per cent. Sluggish economy and strengthening of Japanese yen last year deterred foreign investment and total APAC property transactions fell by 37 per cent to $29 billion.
India stood seventh with $3.2 billion, a year-on-year rise of 7 per cent property transactions in the Asia-Pacific in 2016.
While China dominates investments outside Asia, it has been less active within the region. The Chinese accounted for 43 per cent of Asia-to-global property investments last year, but accounted for only 17 per cent of intra-regional property investments.