In an interesting, if indicative, survey of real-estate investment destinations, Bangalore and Mumbai have bagged the top two spots in the Asia-Pacific region, followed by Manila in the Philippines, Ho Chi Minh City in Vietnam, and Shenzhen in China.
The results are intriguing because the relative newcomers to the Top 5 have replaced cities such as Tokyo, Shanghai, Osaka, Singapore and Jakarta, which have dominated the top for a decade (see box).
Just last year, for instance, Bangalore was at #12 and Mumbai at #13 while Tokyo was #1 (it is now #12) and Melbourne, from #3, has slipped to #16.
“It’s a big jump for the Indian cities that is attributable to several factors,” says Abhishek Goenka, of PwC India. “An expected supply of some 12.7 million square feet of new space in 2016 in Bangalore is massive by any standards, but is similar to levels delivered in 2014 and 2015, making the city by far the biggest source of office uptake in the country over the past five years,” says the report. In case of Mumbai, while it is constrained by geography, is now seeing a strong recovery with the market no longer dominated by financial players, says Goenka. New Delhi, meanwhile, has risen from #16 to #13 because, though Delhi-NCR is a belt with a lot of potential but big problems. “Delays by developers have been common historically in the New Delhi area, with the result that end users have lost confidence in the system and have become unwilling to pay up for their properties,” says the report.
One important factor, of course, is saturation in cities such as Sydney and Singapore — and low economic growth rates.
Sydney was at #2 on the list last year and is now ranked 9.
“…though undoubtedly a favourable market for core investors, [Sydney] is facing a fall because the amount of capital looking for investment opportunities is outnumbering the number of opportunities available,” the report states.
Singapore meanwhile had remained in Top 3 all the way from 2008 through 2013, after which it remained in the Top 10 for two years. It is now ranked 21.
“That city-state has been in the midst of a cyclical downturn since 2015, which means local demand is necessarily low while the supply is still high,” says Sanjay Dutt, managing director (India) at real-estate consultancy Cushman and Wakefield.
The first inference is that India’s economic growth, which has remained stable amid a sustained global downturn, has made it the place to consider if you’re thinking of real-estate investment.
“Within India, the cities with strongest employment growth also have made it to the list,” says Samantak Das, chief economist and national director of research at Knight Frank India . “Since Bangalore and Mumbai are hubs for job opportunities in sectors such as e-commerce, the economic health of these cities is better than many others in India and south Asia, hence the real estate demand and supply are higher too.”
In the case of Bangalore, a major driver of the real estate demand is the technology sector. “The city has companies from around the globe opening their offices and hiring employees from around country. Greater business activity has led to greater demand for real estate,” Das says, adding. “Other global markets have decelerated while Indian GDP has been constant thus making our position strong in Asia-Pacific.”
The situation is similar in Manila, which has spent the past decade climbing slowly but steadily from the bottom of the chart to the top on the back of a “vibrant economy led by a booming BPO market has led it attract positive comment for the last several editions of this report”, as the report puts it.
WHY THESE TWO CITIES?
Why isn’t Delhi-NCR on top, for instance, instead of Bangalore?
“After the economic slowdown two years ago, most investors moved from NCR to Mumbai, which is seen as a less speculative market and promises better, faster returns, and Bangalore, where prices are lower and average returns on investment are still higher,” says Dutt of Cushman and Wakefield.
In addition, Metro rail plans have finally taken off and plans for a big-ticket coastal road and a new airport in Navi Mumbai are moving at a much faster pace than many expected — widening the definition of prime property in the Mumbai Metropolitan Region.
Now, demonetisation and the cash crunch could put the brakes on some of this optimism. Das of Knight Frank projects that it will see the rate of returns on realty drop across the country, at least for the next few years.
“But for even mediumterm investors, these cities are still a great bet, and that will probably be reflected in next year’s numbers too,” Das adds.
Pune techie Jagdish Punjabi, 32, would agree. He bought a flat in Bangalore this year, picking that city over his own, and over the more obvious choices of Mumbai and Delhi-NCR.
“Bangalore is growing fast and getting fancier every year but is still affordable and I was able to buy a flat in a luxury project in a price range that would have got me only a small flat in suburban Mumbai,” he says. “Returns also promise to be attractive, so what’s not to like?”