The coronavirus-induced residential boom is likely to push up prices in India’s real estate market. One out of five of India’s ultra-high-net-worth individuals (UHNWIs) plans to buy a new home in 2021, compared to one out of 10 in 2020.
The preferred investment locations for the ultra-wealthy Indians are largely concentrated in the domestic market, followed by preferences in international markets of USA, UK, Singapore and the UAE, Knight Frank’s The Wealth Report 2021 has said.
As many as 26 percent of the global ultra-wealthy, also propose to buy a home in 2021, up against 20 percent in 2020. The pandemic-triggered residential mini-boom is expected to continue through 2021. Knight Frank estimates this demand to fuel price rises of up to seven percent this year for key markets globally.
According to The Attitudes Survey conducted by Knight Frank as part of this survey, there is a rise in the number of UHNWIs in India who intend to purchase a new home in 2021. The respondents chose upgrading the family’s main residence, buying a new holiday home, and moving permanently to a new country or a territory, as the three prominent reasons behind the new purchases.
The COVID-19 pandemic has also influenced attitudinal shifts in residential purchase, with the emergence of coastal and ski destinations as new preferred locations globally. However, in India, 41 percent of the UHNWIs are more likely to purchase a new house in resorts or coastal areas compared to just about 13 percent, who preferred a skiing destination, the report said.
In terms of attributes while choosing a new home, transport links, internet connectivity, technology and leisure facilities, amenities within the home and developments in the vicinity, are of prime importance to the Indian UHNWIs.
Office and logistics emerged as the top two favourite UHNWI buys for investing in India, while globally it was the residential private rented sector and logistics that emerged as the top two asset classes of choice.
Indian UHNWIs have 17 percent of their wealth allocated to property investments compared to 21 percent globally, the report said.
As many as 46 percent of the Indian UHNWIs are more interested in environmental, social and governance or ESG-focused property investments while globally, 43 percent of UHNWIs are keen on such investments, it added.
With $138 trillion of assets globally, now managed by financial firms, signed up for voluntary climate change financial disclosures under the framework created by the Task Force on Climate-related Financial Disclosures, private investors can scarcely afford to ignore the growing mandate for green assets, including in real estate, the report noted.
As corporates increasingly integrate ESG principles into their ethos, and look to locate in buildings that reflect this, sustainable structures are likely to help attract and retain tenants.
In addition, investing in real estate which is, or has the potential to be made sustainable, could help private investors secure financing more easily against these assets.
“The year 2021 looks promising for real estate in the Indian market. With several government reforms, the residential market has started to show recovery in the last two quarters of 2020. Knight Frank believes that as the government continues to announce positive policy changes, global investors will be favourably disposed towards real estate. As India makes an economic recovery, it will require commercial assets to optimize the productivity of employee workforce and efficiency of manufacturing operations, making it a lucrative asset class,” said Shishir Baijal, chairman and managing director, Knight Frank India.
He added: “As we move further in 2021, ESG is likely to gain prominence as an influence in the property purchase. Though at a nascent stage in India, our survey reveals UHNWIs have cited a preference for environmental, social, and governance-focused property investments. With more awareness of the ESG concept, property conceptualisation on this aspect will gain preference in Indian residential/ commercial market.”
The survey also confirms that international travel will remain weak, with 84 percent of respondents expecting to continue to move around less this year.
Where this trend could become more entrenched is the notable drop in demand for international education. However, with 11 percent of Asian UHNWI house purchases expected to be driven by educational opportunities, there may be a rise in permanent family relocations to educational hubs, with London as the main target, it said.
Liam Bailey, global head of research at Knight Frank, said that the ``Wealth Report confirms a clear rise in demand for residential property - with 26 percent of global UHNWIs looking to buy a new home in 2021, a sharp increase from the 21 percent we revealed in 2020. Demand is especially strong for rural and coastal properties, with access to open space being the most highly desired feature. The pandemic is super-charging demand for locations that offer a surfeit of wellness - mountains, lakes, and coastal hot-spots. Demand will help fuel price rises of up to seven percent for our key markets this year.”
According to The Attitudes Survey, a quarter of UHNWIs plan to invest in commercial real estate in 2021.
Private capital was undeterred by the COVID-19 pandemic and continued to invest in commercial real estate during 2020. While the volume of private capital was down as compared to 2019, a provisional total of $232 billion was invested – nine percent above the ten-year average, the report added.