Indian real estate in 2023 - Great expectations
Economic outlook
- The impact of the momentum of PE investments on the sector has been negligible.
- 2022 witnessed a 19% increase in investments compared to the previous calendar year.
- India is set to surpass Japan and Germany to become the world’s third largest economy by 2029.
Investment outlook
- Investments in the real estate market to remain buoyant across asset classes in 2023.
- We foresee Investors’ cautious but optimistic in their approach in the first two quarters of 2023 as further interest rate hikes are anticipated in the first quarter.
- Investment activity is expected to further pick up pace in the second half of 2023 with more visible signs of stability and probable resolution of global headwinds.
- The market will witness further growth in platform funds with increasing transparency and positive regulatory reforms.
- Data centers are likely to witness an increase in traction amidst rising digitization and a policy push towards a digital economy.
- Warehousing is expected to garner more investments. The rise of e-commerce, hastening of digital mediums, adoption of newer technologies and green logistics will boost this sector further.
- We expect REITs to expand into other asset classes besides office and drive liquidity.
- Investors are expected to look beyond the headwinds and take a long-term approach to real estate investments.
Risk
- Majority of the investments in India is foreign capital. With an increase in global interest rates, capital flows and risk perception will be reassessed by the investor leading to a wait and watch scenario.
- Reducing spread between 10Y G-secs (government bonds) and rental yields may impact the attractiveness of assets for investors.
- With increasing cost of debt, investors may relook at the viability of investment at development stage projects.