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JLL: Revival of Indian RE sector under Modi

Barring the residential sector, the overall real estate sector has grown steadily under Narendra Modi, according to the property consultancy’s mid-term performance report of the Indian government.

The real estate market in India has witnessed a revival and a steady pace of growth on the back of a slew of reforms initiated by Prime Minister Narendra Modi, according to JLL’s real estate report card of the government of India.

In a report titled Setting the stage for Indian Realty: Modi’s Mid-Term Performance Report, the global property consultancy has given the Prime Minister an overall rating of 64 percent on different real estate metrics. These include the impact, and progress, of reforms such as the Goods and Services Tax (GST), the Real Estate Regulatory Bill, the Land Acquisition Rehabilitation and Resettlement (LARR) Bill, and the overall investment climate in the nine quarters of Modi’s regime.

Apart from the residential sector, the performance of most other asset classes has been steady. According to JLL, total net absorption in the office sector has grown by 28 percent, the total stock has increased by 23 percent, and there has been a 270 basis points drop in vacancy levels since mid-2014 when the new government took over. Meanwhile the report has estimated a 250 basis points drop in vacancy levels in the retail sector during this period.

However, the residential sector has remained sluggish with a 24 percent reduction in residential sales and a 40 percent growth in unsold inventory. The report attributes this poor performance to difficulties in acquiring new land, delays in getting approvals for projects, and only a minimal reduction in home loan rates.

In terms of foreign inflows into the sector, JLL commended the removal of FDI restrictions with regard to the minimum capital and minimum size of development in late 2015; and the progress on the legislation of the real estate investment trusts (REITs) during his tenure.
“FDI and private equity inflows saw strong revival post 2014 elections – a first since the financial crisis of 2008,” the report stated.

From January to August 2016, total private equity real estate investment touched INR 210.19 billion ($3.08; €2.9 billion). In comparison, total investment volumes for the whole of 2015 were INR 232.5 billion, and for 2014 were markedly lesser at INR 124 billion.

Stability in the performance of the rupee against other major emerging market currencies last year has also contributed to increasing the faith of international investors, the report said. Additionally, monetary policy moves including a reduction in policy rates by 175 basis points in the last two and a half years have led to cheaper borrowing costs for investors.