Tag Archives: financial capital

Commercial Realty Offers Big Opportunities in Mumbai

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The number of high net worth investors (HNIs) and corporates seriously looking to invest in Indian office space has increased manifold in the last few years. Mumbai continues as India’s numerous office space investment destination, with companies from all over the world unerringly zeroing in on the financial capital.

As South Asia’s only true financial hub, Mumbai is among India’s best places to invest in commercial real estate. In times of global economic uncertainty, investors flock to markets that have consistently proved their long-term stability and fundamentals.

In a scenario wherein institutional investors are showing reduced preference for commercial real estate in their portfolios, Mumbai continues to present HNI and corporate investors with myriad growth opportunities in office properties. However, the multitude of options also gives many enthusiastic investors heartburn -where on Mumbai’s vast and complex map are the low-risk/high returns locations?

Today, Mumbai as a city for commercial space investment reveals a high rate of vacancies in many locations. The rental yields in these micro-locations are expected to decrease marginally over the next 12 months.

While this seems to present a depressing scenario on the surface, the fact is that we are now looking at the bottom of the curve. In other words, these markets are expected to bottom out over the next one year and will consequently start to move up again. These locations have significant long-term capital value appreciation potential, and well-informed investors are keeping a close eye on them.

Real Estate Sector: A look at urban investments in Mumbai.

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India’s growth story has many facets; one of the integral parts of growth – and arguably the most important one – is urbanization. In fast-growing economies, cities are significant investment and employment generators, which in turn carry the growth momentum forward. The sustainability and liveability of any city depends largely on the quality of its infrastructure and real estate stocks. Needless to say, cities also require large sums of money to create urban asset stocks, including buildings and infrastructure.

Over last decade, India’s population grew by 18% while its urban population grew at almost double that rate (at 32%). Currently, about 31.2% of India’s population lives in urban areas. The country’s share of urban population has increased by almost 3.5% over the last decade. What is even more astounding is the increase in the built-up real estate stock in its cities and towns.

Data from the 2001 census shows that about 110 million ‘Census Houses’ exist in the urban areas, which indicates an increase of 39 million over the last 10 years. In other words, real estate stock shows a compounding growth of 4.5 % per annum as against the growth rate of 2.8% in urban population. Obviously, such massive growth needs adequate support from infrastructure.

However, the state of affairs with infrastructure in Indian cities is not very encouraging. Most of the cities still have to deal with issues in terms of roads, public transportation, sanitation, storm water drainage, solid waste management systems, etc. on a regular basis. With the volume of real estate stock increasing inexorably in the cities, there is an acute problem with the basic needs like energy and water in the store for urban India.

The private sector contributes most of the development of real estate stock; however, the responsibility of infrastructure development lies squarely with public sector entities such as ULBs and other utility companies – most of which are Government agencies. The investment pattern in our cities shows a similar trend – the private sector invests in the development of real estate stocks, while the public sector invests largely into infrastructure development.

The quantum of investments in most infrastructure projects is huge, and the agencies responsible for its development are seriously under-financed. They depend either on domestic grants like JNNURM or on intercalation financing involving bilateral and multilateral agencies. In some instances, funds are mobilized from private sources in the form of Public Private Partnership. The private sector generally tends to shy away from investments into city-level infrastructure projects, as most of these projects are considered non-remunerative. They prefer to focus on investing into the development of real estate stock.

Mumbai, India’s financial capital attracts massive investments – largely in the real estate sector. The city being the nation’s epitome of high real estate prices and land scarcity, huge sum of money keep chasing land in the city – while infrastructure augmentation lags behind. Way behind.