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Business News/ Companies / News/  India is a high-risk market due to regulatory issues: Colin Dyer
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India is a high-risk market due to regulatory issues: Colin Dyer

Jones Lang LaSalle's Dyer says business confidence will get a boost if new government is strong-willed, stable

Dyer says the growth rate has continued to reduce in India, whereas it is improving in the rest of the world. Photo: Pradeep Gaur/MintPremium
Dyer says the growth rate has continued to reduce in India, whereas it is improving in the rest of the world. Photo: Pradeep Gaur/Mint

New Delhi: Business confidence in India will get a boost if the new government that comes to power after the national elections next year is strong-willed, stable and business-focused, Colin Dyer, president and chief executive officer of global real estate services firm Jones Lang LaSalle Inc., said in an interview. Dyer, who is on a visit to India, said the country remains a high-risk market because of transparency and regulatory issues. Edited excerpts:

How has been the year 2013 for the real estate market in India?

The global economy has been improving in 2013. In India, in general, the growth rates have been slowing. So, in India, the growth rate has continued to reduce, whereas the growth rate is improving in the rest of the world. There is your answer. Political, regulatory and taxation uncertainty: these are the prime reasons why Indian corporates themselves have been hesitant to invest (in real estate) and why people have been hesitant to spend. But outside India, gradually people are forgetting the euro crisis. We haven’t had any problems this year, so that is sort of making them feel better. The US government and the Congress have had a couple of attempts to commit suicide (financial suicide), but that’s not going to happen any more. Corporates are feeling more confident in Europe and particularly in the US. So, we have got a reverse trend in the rest of the world to the one we are seeing in India.

2013 has remained equally challenging year as 2012 for office space as well as retail. The demand has remained the same, but the supply has continued to build up. On the residential side, every city in India has crossed the capital values peak that we saw in the first quarter of 2008. And that is where the problems started. There has been a pretty quick escalation in capital values (pricing), but salaries haven’t increased with that. Much of the residential properties on the high end are beyond the budget of the people.

However, globally, the demand to buy commercial real estate and invest in the real estate has been very strong. A lot of money from Asia is going to Europe, Europe money is going to America, the US money is going to the rest of the world, because people have been seeing attractive yields from real estate compared to yields from fixed income and other alternate sources. Huge volumes have been transacted. The peak of the transaction volumes in 2007 was $680 billion worldwide. This year, the transaction volumes having gone down to $200 billion is back up to $500 billion. So it is climbing up very significantly. In the market, globally, the demand for space (retail, industrial, office) has been slow this year. It started out at -20% to -30% in most economies in quarter one, and then went to -15% to -10%. We expect to see some growth in the fourth quarter. In India, this trend is reversed. This is not the global pain which has been passed on to India. This is a self-inflicted pain because of inadequacy in political structure or politicians, who have created the situation. But it also means, it could be rectified.

With elections in India next year, how do you see the property market shaping up?

When I visited India 18 months back, it was said that the situation would be fixed before 2014. India was far too optimistic. It’s 2013 and it hasn’t happened yet. I guess it is the election that makes the difference. Particularly if the BJP (Bharatiya Janata Party) is chosen. That’s what the businesses are waiting for. It is the combination of BJP and AAP (Aam Aadmi Party) that people want, to get rid of corruption.

Companies do not like political and regulatory uncertainty that we see in India. It makes international companies hesitant.

Over the last few years, we have been doing well in bringing transparency in real estate, but in the last couple of years, we have actually gone backwards in terms of transparency in the real estate. The government has now realized that to make real estate an institutional industry, they will have to bring in transparency. That’s why we are seeing real estate Bill or the land acquisition Bill or REIT (real estate investment trust) coming into the market. Whichever government comes in, it has to be a clear mandated government, which is strong-willed, stable and is business-focused. The moment we get that, we will see confidence coming back into the economy.

Are there any real estate trends specific to India which we might see in 2014?

In India, the political situation dominates the trends. Global economy is picking up speed. So you could continue to see disconnect between the global economy and India, which is bumping along, sort of, focusing on the growth rate. The other thing is, in general, worldwide there has not been an oversupply. As the demand was weak, so was the construction. In contrast, in some of the big cities, India still has a backlog in retail and the office space to absorb. If you look at London or Paris, that is not the case. They are quite fully utilized. So the chances are demand we talked about should start rising in most mature cities around the world. In India, it will be a while before that happens. You have less supply in the international markets and India is an oversupplied market (in many pockets). Rent in those market will start to go up because there is no oversupply, while in Indian market it will remain flat, barring few micro-markets where we still see demand.

The investment thesis of private equity funds has moved away from development construction into more stabilized assets. If next year, the REIT market is to open up, you will see a lot of institutional money coming from mature markets to come and invest in India to buy core (income producing assets). The banking system in India is also robust and even in this challenging times, real estate on banking side has been stable.

Globally, we would expect about a 10% increase in overall investment in real estate, so $500 billion would become $550 billion next year. It is growing everywhere, including China, Indonesia, and Europe. Across the US, the money is spreading out from the big cities to the small cities, to suburbs. So, the money is flowing out to be less secure, more risky but high return markets, in general around the world.

How do you see India as a market?

It is a less mature, higher-risk market. Higher risk is due to transparency issues, regulatory issues.

Transparency covers the visibility of prices and returns, regulatory framework, legal protection and corruption. If you look at these four parameters and break them apart, India has got some challenges.

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Published: 13 Dec 2013, 12:59 AM IST
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