Rising interest rates

Is real estate sector still on investors’ radar?

December 12, 2022
  • Madhurima Basu

Central banks across the globe have been raising interest rates this year with a degree of synchronicity not seen over the past five decades. This is the broadest tightening of monetary policy in 15 years – starkly contrasting the easy money era following the 2008 financial crisis and the Covid-19 pandemic. Policies to curb inflation while balancing growth are needed to avoid exacerbating recession risks.

India is one of the few large economies not facing any significant political or economic threats till now. In its World Economic Outlook, the International Monetary Fund (IMF) has projected 6.8% growth for India in 2022 and 6.1% in 2023, the highest for any large economy. This makes India the fastest-growing economy in the world, with the US economic growth for FY 2023 projected at 1%, China at 4.4%, Brazil at 1%, South Africa at 1.1%, and Euro Area at 0.5%.

Reducing the spread between 10Y G-secs (government bonds) and rental yields may impact the attractiveness of assets for cross-border investments. Foreign investors may not find sufficient reasons or risk premiums to justify overseas investments. While rising inflation and the associated hike in repo rates remain a cause of concern, the long-term India growth and investment story remains intact.

The investment environment may be subdued in the short term due to global headwinds. As things settle, the resilience displayed by the Indian economy in the past will continue to attract PE investments in the real estate sector.

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