Israeli investments into India’s real estate sector may witness a temporary blip following the surprise and unprecedented multifront attack on Israel by the Hamas militant group, which rules the Gaza Strip, real estate experts said.
The impact will be felt majorly in the commercial real estate sector, due to the slow movement of funds from Israeli firms and rising input costs due to soaring crude oil prices.
The global economy is experiencing its second geopolitical shock since 2022, with the Ukraine-Russian war already leaving a trail of volatile and elevated commodity and energy prices.
Israeli firms investing in Indian real estate
Since the establishment of diplomatic relations between India and Israel in 1992, bilateral trade and economic relations progressed rapidly. From $0.2 billion in 1992, merchandise trade diversified and reached $10.1 billion in FY 2022-23, according to data from the Indian Embassy in Tel Aviv.
Though real estate transactions hold a small fraction of it, David Keynan, Vice Chairman of the Federation of the Indo-Israeli Chambers of Commerce (FIICC), said the inflow of funds from Israeli firms ranges from $10 million to $30 million per annum and growing 20-30 percent every year.
FIICC is a non-profit body that works closely with the Indian and Israeli governments to promote investments in India across several sectors, including real estate.
"By 2008, the direct investments from Israel had stopped. The indirect investments from Israeli firms really started from 2015-16. Most firms prefer to invest in real estate-focused investment vehicles like Real Estate Investment Trusts (REITs), public markets, debt funds and real estate-focused bond funds," Keynan added.
By 2010, several Israeli firms had already invested in the Indian real estate sector, especially in Hyderabad, according to Amit Goenka, managing director and CEO of Nisus Finance.
Reports suggest, among several other transactions, real estate firm PBEL Property Development Ltd (a joint venture company with an Israeli firm) had invested about Rs 500 crore in Hyderabad by 2010. Confirming the development, the company told Moneycontrol on October 18, "The Israeli firms have exited our Indian JV in 2016 itself."
Impact on Indian real estate
The residential segment in India is set to remain afloat due to a major chunk of domestic investors fuelling the sector.
"Impact on some of the money and businesses moving out of Israel into India in a short to medium term period is possible," Goenka added. However, he also added that a fair analysis of the global economy is needed to understand the scale of the impact.
"Investment opportunities in Europe and the US market are not viable today due to ongoing global headwinds. Thus, after China, the Indian economy is the next growth story for global opportunities, including real estate. Indo-Israeli investment in the sector will continue its momentum though slowly," he added.
Additionally, real estate consultant ANAROCK Group cautions that even if it extends over a long period, the real estate sector may see minimal impact, provided the war doesn’t spread and involve other Western countries.
Impact on input prices, affordability
After the start of the conflict, the International Monetary Fund (IMF) said if the oil prices rise by 10 percent, global economic growth would come down by 0.15 percent and global inflation would increase by 0.4 percent.
A prolonged conflict and instability in the region have the potential to influence oil prices, creating uncertainty in the global economy, Anshul Jain, Managing Director, India & South East Asia, Cushman & Wakefield believes.
"Such volatility is bound to have an impact on inflation and trade balance. This, in turn, may affect the real estate sector as it will mean a longer wait until the central banks bring down borrowing rates and mortgages will continue to stay expensive," he added.
Other experts pointed out that property prices have already been impacted by the increased inflation both in India and globally.
"As per ANAROCK Research, in the wake of rising input costs and the significant sales growth, average residential property prices across the top 7 cities collectively registered double-digit yearly growth of 11 percent – from Rs 6,105 per square foot in Q3 2022 to around Rs 6,800 per sq ft in Q3 2023. Quarterly, average prices in the top seven cities jumped by 5 percent," Anuj Puri, Chairman of ANAROCK Group added.
However, he also said that inflation is fairly under control within India, which has prompted the Reserve Bank of India to keep repo rates unchanged for a third consecutive time recently. And this definitely bodes well for the overall sentiments of the homebuyers, Puri added.
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