The India Real Estate report examines the commercial office, retail, industrial and construction segments throughout the country in the context of a cyclical slowdown. With a focus on the principal cities of Mumbai, Hyderabad, Gurgaon, Chennai and Bangalore, the report covers the rental market performance in terms of rates and yields and examines how best to maximise returns in the commercial real estate market, while minimising investment risk.
In December 2012, BMI conducted its latest round of interviews with in-country sources on India's commercial real estate sector. The outlook is subdued for 2013, with a mixed bag of results reported for 2012, although our sources predict very slow growth across the board from 2014. This outlook supports the current fears over India's major developers' debt levels, rising raw material costs and renewed economic crises in the US and eurozone. In addition, there are areas in the country where retail rents are on a par with those in the US, which has tended to price a number of potential renters out of the market.
Indeed, sentiment towards India's growth story is ebbing. Not long ago, the mainstream view was that guaranteed growth would be the new norm on the back of the country's demographic dividend, huge infrastructure push and consumer boom potential. The current state of play appears dire. The rupee has sunk to record lows versus the dollar, rating agencies have warned of a sovereign downgrade to junk status, and the political landscape is mired by factional brinkmanship. For our part, we recently acknowledged that the Indian economy would be hard pressed to regain its pre-2008 rate of growth. By contrast, we see sufficient evidence to suggest that India's investment cycle - the key ingredient for sustainable economic growth - has not only stopped deteriorating, but should also start to pick up, albeit gradually.
- We are maintaining our FY12/13 growth forecast of 6.0% for India's construction sector, as the factors dampening construction activity in the first three quarters of FY2012/13 - relatively non-conducive monetary conditions, policy inertia and lacklustre infrastructure activity - remained pertinent in Q4 2012/13. These factors are also expected to remain pertinent in FY13/14, particularly in the infrastructure sector. Although we continue to expect headline construction growth to improve, to 7.6%, in FY13/14, we have tempered our growth expectations for the infrastructure sector (from 9.4% to 7.9%) and boosted our growth expectations in the residential and non-residential building sector (from 6.1% to 7.4%).
- We remain above consensus on India's economic growth outlook, calling for headline expansion of 5.5% and 6.1% for FY12/13 and FY13/14 (versus market expectations of 5.3% and 5.5%, respectively). Conditions are sufficiently ripe for investment spending to lead a growth upturn, aided at the margin by an improving export performance. That said, the government's persistent fiscal failings will prevent a more pronounced growth recovery, by keeping interest rates high and weighing on overall investor sentiment. A possible ratings downgrade, while not our core scenario, is arguably the greatest risk to our benign outlook.