When investors list attractive real estate markets in Asia, India hasn’t made the cut for some time. Indeed, the country never really recovered from the global financial crisis, and many investors are still haunted by the millions of dollars they lost in the downturn.
India’s GDP growth rate, meanwhile, has been on a steady decline since 2010, reaching a new low of 3.2 percent in 2012 before improving to 4.8 percent last year. The horror stories of ethnic violence, as well as political deadlocks and corruption, also were no help to investor sentiment. With its more stable neighbor China maintaining consistently high GDP growth and a greater openness to foreign direct investment, India easily was relegated to the backburner.
The few institutions that have ventured into India recently all have demanded higher levels of control to ensure that pre-crisis mistakes are not repeated. GIC Private Limited and the Canada Pension Plan Investment Board, for example, would only enter the country through joint ventures. Investors with less firepower, however, generally have given the country a wide berth.
The rise of Modi
Enter Narendra Modi, a Hindu nationalist politician who appears to be just what the doctor ordered. His agenda is based on economic revitalization and removing political obstacles to growth, which he often illustrated as “cleaning the Ganges.” A year of campaigning on that platform and against corruption has won the hearts of India’s citizens.
“[Modi] framed the discussion as what’s good for the country is good for everyone,” said Sourav Goswami, head of capital markets at Red Fort Capital. “He’s much more of a chief executive than a pure politician.”
Another India-based fund manager described the election process as “the best soap opera on television,” and it finally concluded with Modi’s Bharatiya Janata Party (BJP) ousting the long-dominant Congress Party in May. In fact, the BJP got a larger majority than most investors had hoped for.
“At the end of the day, it’s very simple: [investors] wanted a stable government and they wanted things to move,” explained Piramal Fund Management managing director Khushru Jijina. “And we’re already seeing sentiment improve.”
In the short-term, investors are most eager for long-pending reforms to move forward. Jijina mentioned the process of land acquisition and the limitations on foreign direct investment as examples. Regulations surrounding infrastructure investment and development also will be crucial for property values, he added.
Even before such reforms take place, having a pro-growth, pro-investment Prime Minister in office has been enough to trigger signs of “investors coming back in droves” via the public markets, according to The Townsend Group’s Nick Wong.
Indeed, Goswami said this could be one instance where the difference between reality and perception is irrelevant. In his interactions with investors, he has noticed “palpable excitement that is driving a lot of investment.” Many that were sitting on the sidelines now have a renewed mandate to look at India, particularly India real estate.
Goswami posited that the next 24 months will be particularly exciting for existing managers. “I think the appetite for Indian real estate will come back faster than people think, but the number of outlets for that incoming capital has shrunk,” he said. “So the existing managers will get a large share of the returns.”
The spark in the system
Of course, what politicians promise and what they carry out are often two different things. The only way the India hype can last is if Modi can implement the pro-growth, pro-investor policies he’s so long promoted, Wong insisted. “The third arrow of reforms is structural reform, and Manmohan Singh did not do one such reform,” he said. “It is absolutely necessary to have structural reforms for India to move forward.”
Anuj Puri, country head for India at Jones Lang LaSalle, agreed. “We need to see things move forward before we put money in,” he said. “Many ills in India’s economy are very deep-rooted.” Indeed, he fears that yield expectations may be running ahead of what Modi can deliver.
In general, though, investors are keeping positive on the future of India opening up. The absolute majority that the BJP won in Parliament is particularly encouraging, which will make it much easier for the government to push reforms through, Goswami noted. “Given the nature of the majority they won, it’s created a lot of political leverage and capital that will buy the party time to enact policy,” he said.
Given how ‘sentiment-driven’ the real estate business is, just two or three big announcements could be enough of an affirmation to investors in real estate, Jijina noted. “He just needs to put the spark into the whole system so that the wheels start churning,” he added.