My most recent overseas visit was to Mumbai. This time a year ago I must confess to being a little apprehensive ahead of my first visit to the city. But I came away invigorated and full of ideas. A few months later I visited Bengaluru and now I’m back in Mumbai.
Obviously I can’t claim to now know the place like the back of my hand but I do feel reasonably informed and have a fair grasp of the key issues affecting the Indian real estate market.
As anyone who has travelled to India might attest, reality strikes on arrival. The chaos is always heightened after a night flight. At 1am the streets are packed, bustling and loud.
In terms of the country’s economic situation and its effect on real estate, things are just as frenetic. With a restructuring economy, a far-from-transparent market, corruption, and infrastructure that is, to say the least, inadequate, there are challenges aplenty.
But this is not a market crowded with hurdles and devoid of encouraging developments. Mumbai airport is new and efficient, there is a burgeoning middle class, an entrepreneurial culture that is engaging, and a seemingly stabilised GDP that is still a quantum leap above anything the West aspires to.
The property sector and indeed all markets, bar the stock market, are in limbo. This is caused mostly by a massive reduction in economic growth, but also by the election campaigning, which started at the beginning of last week and finishes in early May. It gives everyone the excuse to wait and see.
I have never before experienced such expectation regarding an election. I am told the turnout might increase from 45% to approaching 60%. In a country of more than 800m voters, this would be impressive.
Most people are confident of a change, albeit to another coalition, but this time one led by Narendra Modi of the Bharatiya Janta Party as part of a National Democratic Alliance. If this is the outcome, then the sense is that the Indian economy will enter a period of significant growth powered by much-needed infrastructure investment. ?If this doesn’t happen, then the stock market, now at an all-time high – partly the result of an anticipated Modi victory – will fall dramatically, property will stall, and the now-stabilised currency will fall in value again.
The implications for property are equally stark. On my brief trip I met a number of influential developers. They explained that although residential development activity is significant, it is slowing and take-up volumes are falling. Office and warehouse demand is stable. Most investment activity is local, principally because of regulatory burdens and political uncertainty. However, I sense that the dynamics of all these will change positively, particularly from the end of 2014 and into 2015, if the election results in a Modi-led government.
Looking beyond India’s local markets, London is still very much developers’ hot topic of conversation.
What happens next all depends on the outcome of the election.
For more on the challenges facing India and the other BRIC countries, see our analysis in Estates Gazette next week
Alistair Elliott is a senior partner, Knight Frank
