Real estate outlook for long term: Residential, Commercial, Warehousing, Data centres – where to invest?

Real estate investment has seen phenomenal growth over the past several years in India. While there was a considerable drop in property sales during the pandemic, it has shown a growth in the last year. Manage Your Money discussed real estate investment outlook for the upcoming years while also delving into the performance of the sector in the past 5-10 years.

Watch complete discussion here:

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Divakar Kaushik, Associate Executive Director – Capital Markets & Residential Services, CBRE, said, “Last quarter, around 80,000 units were sold, and that’s almost a 121 per cent year-on-year increase. If you look at H1 2022, we are approximately at 1.50 lakh units which is a 72 per cent increase. Looking at the black swan events happening every 2-3 years, these are extremely robust numbers. It says that the investment sector is back and this may be the best year for both residential and commercial real estate sector.”

In terms of markets, Divakar Kaushik said that even in major cities like NCR, Bengaluru, Mumbai, there are different pockets that’s performing well as compared to others. “For example, in NCR, while Delhi is not giving great returns but Gurgaon is doing better and even in Gurgaon there are few areas or pockets where residential real estate has been able to give good returns. Every market has behaved very differently,” he said.

Investment experts discussed the kind of returns buyers can expect from residential real estate as opposed to commercial real estate and also around the new emerging pockets in the sector – warehousing and data centres. “Real estate sector has been going really down for last many years and in the last year or so, after the pandemic, sales of residential real estate has increased and a lot of real estate developers are showing great business across regions – north, south, east or west,” said Gaurav Karnik, Partner & Leader – Real Estate, EY India.

The real estate sectors to invest in

While residential real investment has an emotional aspect, and the sales in the sector have considerably increased as well with ‘many top developers showing fantastic sales’, commercial real estate has performed better in the last 10 years and that will continue to grow, said Gaurav Karnik. The other real estate class that’s coming up is warehousing and data centres. As per Gaurav Karnik, “warehousing is seeing a significant increase in demand and a lot more investments are happening there and in the next 3-5 years there will be more investment happening in data centres space. The other segment to look out for is co-living or student housing.”

Saurabh Gupta, Fund Manager – Real Estate Private Equity, IIFL Asset, agreed as he maintained, “While you have the core and emerging classes to invest in, data centres and warehousing have a pretty much solid story that we can see playing out in the next 5-6 years.” In terms of returns, he added, one can expect high single digits or low double digits kind of growth from residential real estate as against equity investment where one can expect 12-15 pr cent returns over a long period of time. Commercial real estate, meanwhile, gives around 8-10 per cent yields and can be termed as an asset class which gives inflation-adjusted returns, he added.

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