Bengaluru, Mumbai Slip In Asia-Pac Realty Destinations List

According to a report by the Urban Land Institute (ULI) and PwC on Emerging Trends in Real Estate Asia Pacific 2014, Indian cities have managed to retain a place in the top 25 real estate destinations of the Asia-Pacific region. However, Mumbai and Bengaluru have slipped to the 23rd and 20th positions from holding 20th and 19th place in the previous report of 2013. Delhi has maintained its ranking at 21st place, and Chennai has found itself on the list for the first time, coming in at 22nd position.

Gautam Mehra, Executive Director at PwC India said, “The general slippage of Indian cities in the rankings, coupled with the retention in the Top 25 list, tells the story – on the one hand, there is the negative impact of the combination of market, currency, regulatory and political risk which continues to result in a general sense of nervousness and the tendency of foreign investors to stay on the sidelines, while on the other, the undoubted potential continues to keep interest levels going".

The interest in Indian markets remains high regardless of the ongoing economic problems, uncertain currency outlook and a mid-year plunge in the value of rupee and an investment environment not exactly for international investors.

Commenting on the markets in terms of volume and growth, Dr Samantak Das, Chief Economist & Director, Knight Frank says, "On the residential front, I would say that there is a shrinkage in size on the supply as well as demand-side in most of the cities. The shrinkage is especially high in a city like Mumbai. The last quarter has been tremendous for Chennai in terms of volumes and launches. Delhi, is showing some sort of stability now in terms of the residential market, which was not seen in the first quarter of this calendar year. Very interestingly, I would say that Bengaluru is showing some sort of upward movement, and it is reflecting in the inventory. During the quarter, concern has gone slightly down from 6 quarters to 5 quarters unlike cities like Mumbai and Delhi. So overall, in the residential space, most of the cities are showing some sort of fall in terms of launches and sales. As far as office space goes, it is again a very subdued market. There is nothing really to talk about as it is picking up, but big cities like Bengaluru, Mumbai and NCR are holding to the 2012 level and are not showing any great improvement. And in my opinion, in this domestic and global economic scenario, holding to the 2012 level is not bad".

The report notes that unlike other asset classes, real estate in Asia “barely flinched” this year in response to the tapering of the U.S. economic stimulus and expectations of higher interest rates because of the increase in sovereign wealth and institutional capital being directed to Asian markets.

Das further comments that the debt burdens are at a 5-year high stress level in the listed space, and that it is very difficult to understand the unlisted space. "The only way out is that they have to increase the sales volumes to come out of this debt trap. It is really difficult to say the time that when it will be better but I think that the stress level might reduce in another 6-7 months unless and until they produce in such a way that the sales volume pick up. But as of now definitely the stress burden is at a 5-year high", he adds.

Top investment markets in 2014

Japan is one of the largest beneficiaries of capital flows from other regions within Asia. Its increasing popularity is attributed to the government’s massive economic stimulus plan, which has resulted in a flurry of property purchases in anticipation of rapidly rising prices. Tokyo has emerged as an investment magnet soon after the introduction of dramatic economic reforms aimed at boosting the economy. The city is ranked second on the parameter of development prospects for 2014.

Shanghai, described as an “evergreen” market for investors, is ranked second for investment prospects. The city is ranked 4th on development prospects.

Jakarta is ranked third for investment potential, despite a lack of market transparency, difficulties obtaining entitlement and competition from local businesses and individuals. The city features at the top of the list in terms of development prospects.

Manila has moved up to 4th place for 2014, as a result of a fast-growing economy. The city has seen increasing popularity as a destination for multinationals seeking outsourced services, and is ranked 8th in terms of development potential.

The top-5 list is rounded up by Sydney, which appeals to both local and foreign institutional investors despite relatively weak fundamentals in its office and retail sector. The city is ranked 11th with respect to its development prospects.