The economic slowdown in China and the hike in interest rates by the United States in December 2015 is working in favor of India. The country has emerged as one of the top choices for multinationals looking for business expansion.
The commercial market of India is expected to witness stupendous growth in 2016 with multinationals across various domains such as banking and finance, retail, technology, healthcare, manufacturing and petroleum looking to expand their businesses in the country.
According to a recent CBRE Asia Pacific Occupier Survey, “India will be the main focus of multinational companies this year driven by solid economic growth and rapid demographic changes in the market.” Companies like Delta Electronics, Amazon, Uber, etc are very keen to their operations in India. For instance, Delta Electronics is all set to open a research and development center in Bangalore and a factory in Hosur, which will generate job opportunities for over 20,000 people.
The current economic slowdown in China is a major reason cited by multinationals behind the spotlight India is getting. Also, the reduction in the working age-population of the former country allows the latter to grow. The Reserve Bank of India (RBI) estimates that the country’s gross domestic product (GDP) will be around 7.6 per cent in 2016-17, one of the highest in the world. Apart from this, the Make in India campaign, Start-up India initiative, opening up of foreign direct investment (FDI) in defense sector and other campaigns along with regulatory reforms have made the country business-friendly. Evidently, India has improved its ease-of doing-business ranking in the past two years.
As to where the investment is heading, according to a recent JLL-RICS report, Mumbai Metropolitan Region (MMR), Bangalore and Pune are the top three cities emerging as the preferred investment destinations. In comparison to 2014, absorption in MMR doubled in 2015 while in Pune it was 2.4 per cent more. In Bangalore the absorption has seen a small dip.
“The hike in interest rates by the US spells good news for the Indian IT sector and highlights a further growth in the commercial segment. Liberalization reforms have seen a lot of foreign fund flow into the Indian real estate and this will only increase further in the coming years,” says Mohit Goel, CEO, Omaxe Ltd.
Cost effectiveness is another factor driving multinationals to India. The labor cost, office sale or leasing prices and operating costs in India is way lower than the European and USA counterparts. This makes the country an ideal location for multinationals looking to open their back-offices. Presence of educated professionals and skilled labor are other benefits for the multinationals.
Among those surveyed in the CBRE report, India was the only country where multinationals did not expect to contract in coming three years. This shows the confidence that these companies have in the future potential that India holds.
As it always happens, improved activity in the commercial sector will benefit other industries including real estate. Creation of jobs and increase in the disposable income will allow people to enter the realty segment easily.