MUMBAI: The ongoing slowdown and steep rupee fall are among the factors making the country a riskier realty destination for global investors, even as it continues to be a high return market, say experts.
According to a report by PricewaterhouseCoopers (PwC), mature markets like Tokyo, Shanghai, Jakarta, Manila and Sydney have emerged as the most preferred real estate investment destinations compared to the domestic market.
Even though cities like Bangalore, Delhi, Chennai and Mumbai have emerged in the list of 25 top investment spots in the realty space, they ranked at 20th, 21st, 22nd and 23rd positions, respectively this year.
"The general slippage of the domestic cities in the global rankings, coupled with the retention in the top 25 list, tells the story that there is the negative impact of the combination of market, currency, regulatory and political risk which continue to result in a general sense of nervousness and the tendency of foreign investors to stay on the sidelines," PwC India executive director Gautam Mehra said in a report.
According to him, though the challenges are currently portraying the country as a riskier market for global investors, India's potential continues to keep interest levels going.
Echoing similar views, RICS South Asia Managing Director Sachin Sandhir says high inflation and interest rates are affecting the investor sentiment.
"Amidst global economic uncertainty, fiscal consolidation and the prevailing local market conditions, investments have come down compared to previous years. But it still holds potential for giving healthy returns in future," he adds.
As per the industry estimates, private equity firms are sitting over about $2 billion awaiting an opportunity for deployment in the real estate sector. But wary investors and fund managers now want to put in their money only in those projects with strong fundamentals, Sandhir points out.
According to Diwakar Rana, who is a director at Cushman & Wakefield, investors are looking at stable assets with safer returns.
"Due to the prevailing challenges, investors are looking at markets and assets which are stable. However, the interest in challenging economies continues as the return of investment is higher in high risk markets," he says.
While more mature markets give 5-8 per cent returns on investment, riskier market give returns of 18-20 per cent.
Rana further says, "There is a trend that investors park some of their funds in stable economies where returns are safer but lesser and some in high returns markets which are riskier, though the proportion may have changed with investors preferring mature markets to riskier, the interest in the latter continues."
According to industry estimates, a total 393 private equity deals worth $9.67 billion were signed between January and November this year, out of which only 6 per cent or $40 million were in the real estate sector.
However, Sandhir says, this is likely to continue till the general elections.