Location, Location

Location, Location
Globalization and real estate in India

By Ashok Bardhan, senior research associate, Haas School of Business, University of California, Berkeley

Globalization has reached the very local and non-tradable bastion of real estate. In the last decade, cross-border transactions, portfolio and direct investments have surged in real estate, impacting prices, volumes and industry structure. Technological advances in information and communication technologies and the internet’s coming of age have extended the geographical reach and depth of real estate markets. At the same time, a number of countries have opened up to foreign trade and investment. India, one of these fast-growing emerging economies, is also a country where the inter-relationship between globalization and real estate is being played out actively.

Along with foreign direct investment in information technology, manufacturing, finance and other services, India has also started attracting significant interest in the real estate sector. Large numbers of international developers, brokerage, consulting and real estate services firms, real estate finance firms and investors, including those from the United States, have extended their areas of operation into India, sometimes following in the footsteps of other multinationals, who were often their clients back in the U.S.

Growing demand

Emerging economies, India in particular, present major opportunities in real estate. There is a large backlog in quality housing, the demand for which has acquired a boost following sustained and rapid economic growth, increasing numbers of the middle classes, as well as greater availability of housing finance. Large public investments have been responsible for a construction boom in infrastructure-related real estate projects. The ongoing phenomenon of outsourcing from the U.S. and other western countries has generated a very substantial increase in demand for top grade office space, particularly in major urban areas. Changes in consumption patterns are also being reflected in growth in demand for retail and warehousing space.

The mismatch of demand and supply has created a situation where prices and rents of commercial real estate, as well as of residential space in major cities are among the highest in the world. While there are significant investment risks, as well as issues regarding titles, zoning and investment restrictions, the real estate sector in India is a key driver, as well as a beneficiary of the Indian economy’s growth—growth that looks likely to continue into the foreseeable future.

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