NEW YORK — China’s property market troubles have global private credit investors looking increasingly toward India as Prime Minister Narendra Modi’s infrastructure push drives up real estate prices.
More than $4 billion flowed into India in the form of private credit during the first half of 2023, with over 50% going into real estate, Ernst & Young reports. This compares with $5.3 billion in all of 2022. Fund managers surveyed by the firm expect real estate deals to continue to increase in the next year and a half.
“It has a lot to do with the strong economic fundamentals, but India has also benefited from the shift of sentiment away from China,” said Edwin Wong, a partner at Ares Management and head of Ares Asia.
India surpassed China as the world’s most populous country this year, U.N. projections show, and also has overtaken China in economic growth. Last year the Indian economy grew faster than any other major market, a feat it is expected to repeat through fiscal 2024, when the economy is projected to grow 6.3%, according to the International Monetary Fund.
“When people look at India’s economic achievement in the past years, its favorable demographics and strong and stable government that has been pushing through reforms that are beneficial to foreign investors, the growth story of India does look quite promising,” Wong said.
Private credit investors provide loans in deals where traditional bank financing is unavailable. They serve a niche market in India, where regulations limit banks’ ability to fund or lend in real estate transactions, especially in early stages of land development.
Following the pandemic, consumer preference shifted toward home ownership, and for larger homes, said Nishant Kabra, head of land and capital markets for North and West India at JLL Capital.
“That sort of flip has really continued, and it doesn’t seem to be abetting,” he said. “So you have residential setting new highs quarter after quarter. That has created more liquidity in the system, and real estate developers have become aggressive on land acquisitions.”
India’s real estate sector makes up 6%-7% of gross domestic product, a share projected to double by 2025, according to accounting firm Grant Thornton’s India branch. The country’s real estate market is expected to reach $1 trillion by 2030.
Modi has emphasized infrastructure spending to drive economic growth, and India’s capital investment increased 33% in its full budget laid out earlier this year.
This kind of capital investment into roads, railways and affordable housing will accelerate the country’s already rapid urbanization, which has exacerbated housing shortages.
“Much of the capital that is needed to fund the growth of India is going to come from the private sector,” Wong said.
A 2016 real estate regulation act and recent changes to bankruptcy codes have helped boost investor confidence in India, but navigating the complex web of land leasing and approvals remains daunting for outside investors, and working in private credit can help investors overcome some of those hurdles.
“Investors can work alongside many of the established players in the equity space,” said MSCI’s Benjamin Chow, who leads research on commercial real estate capital markets in Asia. “Private credit also targets a relatively safer portion of the capital stack, as investing via debt rather than equity provides a bigger buffer against losses.”
Chow said there have been only a few explicit investment announcements regarding scaling down in China while ramping up in India, but overall appetite for China’s real estate from global institutional investors has waned.
“Against this backdrop, this is India’s moment to shine,” he said.
But the Indian rupee’s weakness against the U.S. dollar is dampening the appetite at least for some.
“Unless you’re a local operator looking to make returns in rupees and have difficulty exporting your capital, in which case on a relative basis it’s likely that property lending is more appealing than corporate [lending] right now, it is very hard to justify investing there relative to many other places in the Asia Pacific,” said Dan Zwirn, CEO of Arena Investors.
Source : NikkeiAsia