For many years, India’s real estate markets languished in the shadow of a booming Mainland China, with investors flocking there to buy real estate and tap into emerging demand. More recently, as China has struggled to mediate structural oversupply in real assets, investment flows are moving increasingly in a southerly direction. A panel at the ULI’s 2024 Asia Pacific Summit in Tokyo addressed the dynamics of current investment landscapes in each market.
While economic issues have been a major reason for declining flows into China, they are to some extent also a natural consequence of the country’s evolution toward developed-market status, according to Tim Wang, co-president of logistics and industrial real estate at GLP China. As urbanization trends and infrastructure construction have peaked, demand has faded for new facilities.
India, meanwhile, is still in the early stages of investment-led economic growth, while also reaping the gains from a decade-long period of regulatory reform and loosening that has generated growth “of effectively 12 to 14 percent in nominal terms,” according to Singapore-based Rohan Sikri, senior partner at the Xander Group. “This is a quite staggering figure for what has always been a consumption-led economy. So today, combined with regulatory and infrastructure development, it has become a force to reckon with.”
Direct comparisons between the two markets are tricky, but one area where similarities may be drawn is in the pursuit of opportunistic or distressed investments. In China, according to Wang, distress still remains thin on the ground, despite deep constraints in capital. Nonetheless, dislocations certainly exist—and will presumably surface over time—in the form of either “residential developers, or owners of high-quality commercial and industrial real estate, who may be forced to sell at a discount to replacement cost.”
At the same time, Wang said that financing costs continue to decline “into three percent territory [compared with much higher rates] from four or five years ago, and with labor costs and construction materials also getting cheaper, that creates opportunities” for investors.
In India, meanwhile, opportunities for distress may not be as prolific as elsewhere simply because of the global interest rate cycle. Rates were almost nothing a couple of years ago; now they’ve become a significant component of underwriting costs.
According to Sikri: “In the U.S., interest rates have gone from practically zero to around five percent, and real estate financing has gone from three-to-four percent to eight-to-10 percent. But India has always had high interest rates, so financing costs have crept up from eight percent to 8.7 percent—so they have moved, but it’s not a material shift compared to other markets.” At the same time, however, the availability of capital from Indian banks remains constrained.
Another issue that has traditionally proved thorny for foreign players in both China and India is strategies for exiting deals. At the moment, this may be academic in China because so few foreign investors are willing to enter new deals in the first place. Still, according to Wang, the market is not short of liquidity for income-generating assets, given that returns on fixed income and cash deposits in China are now at multi-year lows. He said there’s increased demand among Mainland institutions—in particular, insurance companies—for core or core-plus assets that require a minimum of asset management or operational expertise.
In India, meanwhile, liquidity is generally quite low, meaning deal flow is also suffering. According to Sikri: “I think 2023 was a year which saw an all-time low for liquidity. This year, people are a little more optimistic, but it is not going to be returning to 2019 levels anytime soon. So I think that’s a dynamic that’s playing out across markets. At the same time, there are still transactions happening for every deal, but if there were 15 bidders or 20 bidders in 2019, there are only four now—and that’s simply a function of reduced liquidity in the market.”
