Land controls is restricting supply, but demand will only grow as more Indians want to own homes, and move out of joint families, Alastair Hughes tells Forbes India
Designation: CEO, Asia-Pacific, Jones Lang LaSalle
Education: Economics graduate from Heriot-Watt University, Edinburgh; diploma in Land Economy from University of Aberdeen
Career: Managing director of JLL’s UK business; head of its EMEA business; Asia CEO
Q. How have global investors fared in India?
It’s partly cyclical but there are other factors as well. India really got onto the international investors’ radar in 2005 when they were sold the ‘Incredible India’ story.
The way these investors work is they assess all opportunities worldwide from a risk profile [standpoint] and then allocate money. So, if you are investing in London, Singapore or New York, there is hardly any risk. Plus, they are liquid markets.
The perspective for India is that it is a risky market. International investors had to invest in development and couldn’t buy finished products. But then two things happened: The execution risk in India was underestimated; and India went through a surge, and then prices fell. Most international investors put their money in the surge. When you put all of this together, they’ve had a bad experience.
Q. Will there be a correction in house prices?
I don’t see any great drama in the Indian residential market. I think you’ll be a very brave man to bet against this market at any time in the next 10 to 15 years. There are so many things that drive demand.
In our world, it is all about demand and supply. Supply is relatively difficult to deliver in India due to land controls and permits. But demand is vast, partly because of Indians’ desire to own their homes and partly due to the generational shift with people moving out of joint families. A combination of these things means that the residential market in India will be huge for a long time to come.
I am not talking about next month or the month after that but systemically, demand for residential properties is in pretty good shape.
And the multiplier for the average salary to the average home has changed dramatically in the past 10 years. Homes are much more affordable.
Q. Where does India stack up as an investment destination when compared to other Asian economies?
It depends on what you are trying to achieve. If we are speaking to our long-term institutional clients who are looking at an alternative to bonds, we advise them to go to more mature places where they can go and buy a finished project and don’t have to get into development.
Markets such as Singapore, Tokyo and Sydney fit this. In these markets, you can get a yield on your property that is higher than the cost of borrowing.
If it’s money, where the investors are looking for equity-style returns, we will advise them to come to India. We would tell them to get involved in commercial properties—where you can get yields between 11 percent and 12 percent—that are leased at 60 percent of what they were worth in 2008. So, there is also a chance of price appreciation.
If the investors want to grow right up the risk curve, we would advise them to get into residential development in India. There’s an execution risk here.