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REITs to generate more commercial growth in India

PETALING JAYA (May 5): The implementation of real estate investment trusts is expected to generate more commercial growth in India’s financial segment, according to Jones Lang LaSalle (JLL) India.

The firm recorded 31 office projects encompassing 6.5 million sq ft space commencing operation, taking India’s total operational stock to 405.9 million sq ft in 4Q14. This year, a total of 35.6 million sq ft of office space is expected to become operational.

“Many retail investors would be able to get into the commercial real estate game through REITs. The new format offered by some developers these days allows retail investors to get into commercial real estate,” said Anuj Puri, chairman and country head of JLL India.

Puri said there are other factors that make commercial real estate investment a safer bet, such as the impact of Achhe Din (better days) – a slogan made popular during India's recent general election which saw Narendra Modi becoming Prime Minister in May last year.

"The pan-India net absorption during 2014 was up by more than 11% and reached 29.9 million sq ft. Bangalore’s extraordinary performance along with increased q-o-q contributions with Pune, NCR-Delhi and Hyderabad helped to achieve such a robust level of absorption.

"The overall vacancy also rate fell to 17% in 4Q14 from 17.5.% in 3Q14 with Delhi-NCR remaining around 27; followed by Mumbai (20.4%) and Bangalore (8.2%) due to strong demand,” Puri cited.

The start-up boom is also a key factor in the growth of the commercial segment.

India is seeing a steady growth in start-up business, Puri observed. The renewed confidence is not only amongst international players but also lending Indian corporates, proving to be a major cause in driving the demand from commercial real estate in India's tier-1 and tier-2 cities.

"The average capital values in the Indian commercial real estate sector are still 25% lower than the most recent peaks seen in mid-2008. However, capital values in the residential sector had surpassed their previous peak by end-2011.

"Given that commercial rental and capital values have bottomed out considerably in most major cities in India over the last couple of years, commercial real estate is now attracting a larger share of investor interest," Puri added.

He also noted that yields in the commercial segment in India fared better than its residential segment, also offering higher capital appreciation owing to rising demand.

"Investing in commercial properties has emerged as the more prudent route, especially for those who have enough equity for the down payment. The positive monthly returns promise a regular cash flow, so the investor is not dependent solely on appreciation to generate a profit," said Puri.

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