Chinese investors betting on South Asian country’s real estate market, despite challenges

By Wang Cong and Zhang Hongpei Source:Global Times Published: 2017/5/21 18:28:40

India’s property prospectors


Many aspects of China and India have often been compared, such as the size of their populations and the pace of growth of their economies. Recently, many of the comparisons have dealt with their real estate markets. Is India's current real estate market similar to the one in China decades ago that helped the Chinese economy become the second largest in the world? The answer remains to be seen, but an increasing number of Chinese developers and investors are betting on the affirmative.

Pedestrians cross the street in Mumbai, India, in April, as a luxury residential project towers above them. Photo: CFP



After her first few business trips to India, a Tianjin-based businesswoman surnamed Liu recognized something familiar in the South Asian country.

"It's like China in the 1980s," said Liu, who only gave her surname. "There are a lot of opportunities."

Liu, who works in logistics, sees a place for her business in India, but she has also identified a more enticing opportunity. 

"The Indian real estate market is alluring, and I'm confident in its future," she told the Global Times Thursday. "The property market has great prospects due to the country's rapidly growing population and the soaring demand for land."

Liu has already started laying the groundwork for a real estate business in India. She has registered a company there and is on the cusp of purchasing land.

She is hardly the only Chinese investor who sees the potential of the Indian real estate market. Wu Shunhuang, CEO of Inworks, a Hong Kong-based firm that provides shared workspaces, is also optimistic about India's real estate market.

In 2015, Wu's company set up a subsidiary in New Delhi, India's capital. Since then, he has seen some ups and downs in the market. Right now, the market is recovering from the government's currency ­maneuvering, which demonetized high-denomination bills.

After the ban took effect in November 2016, real estate demand slumped and home prices also plunged, said Wu, who noted Indians prefer to buy property with cash because taxes and fees are much higher if they borrow money from banks.

Still, the downturn didn't shake Wu's confidence in the Indian real estate market's long-term prospects.

"India's property market is poised to rebound and will have strong growth thanks to the country's enormous demand for infrastructure and higher living standards," Wu told the Global Times Thursday.

In recovery

India's property market also stands to benefit from rapid urbanization and an insufficient supply of residential and commercial real estate in one of the world's fastest-growing economies, analysts said.

"With such a huge market, the opportunities are obvious," said Jason Wang Chao, founder and CEO of Ventures in India, which helps Chinese companies invest in Indian start-ups.

India's real estate market had been in the doldrums around 2012, largely due to the influx of short-term speculative investments and the extremely high cost of fundraising, according to Wang, who has been based in India for several years.

But the situation has greatly improved since 2014, when ­Indian Prime Minister ­Narendra Modi's administration took over, Wang said.

"Real estate demand has recovered with the economy, especially due to the gradual increase in disposable income among the middle class as urbanization accelerated," Wang said.

The Modi administration's economic development plans such as "Make in India" and "Digital India" have stimulated demand for modern commercial and industrial real estate, Wang said. At the same time, there is an "extremely limited" supply of currency to meet such demand.

Similarities with China

Because India's rapid pace of urbanization and market growth resemble what happened in China over the last two decades, it's no surprise that Chinese investors, including some real estate heavyweights, have been drawn to the country, analysts noted.

In recent years, many Chinese developers, including real estate giants such as Dalian Wanda Group Co and China Fortune Land Development Co (CFLD), have entered India's real estate market.

Wanda reportedly plans to invest $10 billion to build an industrial park in the state of Haryana, which is close to New Delhi. CFLD has signed memorandums of understanding with several Indian states to invest $10 billion in the construction of industrial parks, according to a 2016 post on the website of China's Ministry of Foreign Affairs.

In addition, Chinese residential property developer Country Garden is also planning to enter the Indian market with news on specific projects expected to emerge in 2017, according to a report published in January on people.cn.

More domestic developers and investors are expected to follow as they look to expand into overseas markets, due to tougher regulations at home as the government seeks to cool the overheated domestic property market, analysts said.

India's property market sales are expected to grow at a compound annual rate of 14 percent from 2016-20 and 18 percent from 2020-25, which is comparable to China's 22 percent compound annual growth rate from 2004-15, according to a Morgan Stanley report released in January.

Chinese firms could have a great advantage due to the large amount of capital at their disposal and their long experience in a market that is similar to India's own, analysts said.

"Chinese companies have a relatively large advantage in capital and expertise in planning and construction," Wang said.

Chinese investments in India are based on the similar urbanization experience of the two countries, Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, told Global Times Wednesday.

Consequently, Chinese companies have become a driving force in the Indian market.

Complex challenges

However, Chinese companies will also face tough challenges in India, such as difficulties in gaining approval for business deals, political complexities and outdated infrastructure, analysts said.

Although the Indian market is open to foreign firms and the government has reduced project size requirements to lure more foreign investment, risks remain, Wang said.

"[Chinese companies] need to learn about and manage risks such as India's complicated land policies, the long land purchasing process, legal risks and tax issues," he said.

The land ownership situation in India is complex, analysts said. State governments and the military own land, which can make acquisitions difficult.

Liu has run into challenges. Registering her business in India has been "a slow and clunky process," she said.

However, the challenges haven't deterred her from investing in India. Now that Liu's company is registered, she is waiting for the right time to make an investment.

 

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