Interview with CEO (APAC), Cushman & Wakefield
The real estate market in India will continue to witness stable conditions for the next two to three quarters and then see improvements, expects Sanjay Verma, chief executive officer for the Asia-Pacific at Cushman & Wakefield. Edited excerpts of a conversation with Nivedita Mookerji:
Do you think the real estate sector is on the verge of another meltdown globally?
No. While there might be some concerns about overbuilding in certain sectors, in certain markets, the likelihood of a global meltdown is extremely low. Such an event would require a major global recession, led by steep declines in the US and a hard landing in China. Europe is in recession currently and the markets are continuing to weather that storm. It would take declines in demand from the US to cause global employment to decline enough to lead to a global meltdown and we see that as very unlikely.
How is the ongoing slowdown impacting the property market in India? Is it expected to get any worse over the coming months or do you see things improving?
The ongoing slowdown has had a mixed impact on property markets in India. In the commercial office sector, we have seen that though companies are still committed to their expansion plans, they are in a wait-and-see mode and are progressing very slowly on executing these.
In the retail sector, national and international retailers are still keen on expanding their presence and have been taking up spaces in both high streets and malls. The difference is that the sector, on the whole, is becoming more mature and retailers are keen on taking up only quality spaces. In the residential markets, we saw that capital values in many micro markets across cities had already crossed their previous peak levels of 2008. There is still a lot of end-user and investor demand unmet in all the cities, though some micro markets in the metro cities of Mumbai and Delhi have some unsold stocks, largely the result of oversupply.
The Indian real estate market will continue to witness stable conditions for the next two-three quarters and then see improvements, in line with the overall economy getting back on track.
Among Asian countries, how is India placed in the context of property prices, project launches and delivery, and the health of real estate companies and their debt position?
The volume of under-construction activity in India is second to only China. Though a number of developers have high levels of debt on their books, most are in comfortable positions, as they have been taking active steps to correct the situation. At the same time, there are a sizable number of companies with very low levels of debt, while still others have none. Though there is still tremendous scope for Indian developers to improve the accountability and reporting processes, we can safely say that compared to other Asian countries, Indian real estate is still quite stable and offers some of the best investment options, even on a global level.
Cushman recently spearheaded the Capital Square deal in Singapore. What do you have to say on mergers and acquisitions in real estate at this point?
We expect more M&A activity among REITs (real estate investment trusts) and other property companies, especially as global economic conditions gradually improve. To date, most corporate action has been investment via joint ventures but outright merger and takeover activity is also likely to increase, as funds look for people and platforms, as well as products and look to bulk up.
Private equity firms are said to be keen on exiting the real estate sector because of the downturn. Your comments? Is this a trend in other parts of the world, too?
The only PE exits being witnessed in India are where funds have 2005-2006 vintage and the fund life is coming to an end. We see the PE in real estate in India as stable at around $1 billion at the moment; going forward, more allocations will happen. The sentiment for increased allocation to Indian RE by international investors has increased significantly. For example, Blackstone has made significant investments of Rs 42 billion (Rs 4,200 crore) in the past two years. The Government of Singapore Investment Corporation, one of the largest and most active sovereign funds, has set up an India team for directly investing here since 2011; earlier, they were investing through an indirect route.
Globally, there are no signs that they are stepping back or selling out. Older funds do have exits to consider, of course, and some are taking profits, selling opportunistic purchases now that prices have risen. But, in general, they seem ready to reinvest and are typically raising more new money to put into the market. In terms of allocation, Europe obviously has a fight on its hands to win any higher share of capital, with opportunities in the Americas, north and south, as well as Asia, appealing to many international players.
In 2013, what is your projection for Indian real estate?
It will witness trends similar to last year. Overall, the year will show stability, though we do expect the first half to be somewhat subdued and the momentum could build up from towards the end of the second half of the year. This is, of course, subject to political conditions remaining stable and an anticipated economic recovery as the year progresses.
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