Hamas Conflict May Temporarily Slow Israeli Investments in India’s Real Estate Sector

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    Industry experts are predicting a temporary slowdown in Israeli investments in India’s real estate sector in the wake of the unprecedented multifront attack on Israel by the Hamas militant group, which controls the Gaza Strip.

    The impact is expected to be most pronounced in the commercial real estate sector, owing to reduced fund flow from Israeli firms and the mounting input costs attributed to surging crude oil prices.

    This development marks the global economy’s second geopolitical shock since 2022, with the ongoing Ukraine-Russian conflict already causing volatile and elevated commodity and energy prices.

    Israeli Investments in Indian Real Estate

    Diplomatic relations between India and Israel, established in 1992, have seen robust growth in bilateral trade and economic ties. Data from the Indian Embassy in Tel Aviv indicates that merchandise trade, which stood at $0.2 billion in 1992, surged to $10.1 billion in the fiscal year 2022-23. Although real estate transactions constitute a small fraction of this trade, David Keynan, Vice Chairman of the Federation of the Indo-Israeli Chambers of Commerce (FIICC), notes that Israeli firms have been investing in Indian real estate, with an annual range of $10 million to $30 million and an annual growth rate of 20-30 percent.

    FIICC, a non-profit organization collaborating closely with both the Indian and Israeli governments, actively promotes investments in India across various sectors, including real estate.

    Direct investments from Israel ceased in 2008, but indirect investments from Israeli firms gained momentum from 2015-16. Many Israeli companies prefer to invest in real estate-focused vehicles, such as Real Estate Investment Trusts (REITs), public markets, debt funds, and real estate-focused bond funds. By 2010, several Israeli firms had already made significant investments in the Indian real estate sector, particularly in Hyderabad, according to Amit Goenka, Managing Director and CEO of Nisus Finance.

    Reports suggest that real estate firm PBEL Property Development Ltd, in a joint venture with an Israeli company, invested approximately Rs 500 crore in Hyderabad by 2010. Confirming this, the company informed Moneycontrol on October 18, 2023, that “Israeli firms exited our Indian joint venture in 2016.”

    Impact on Indian Real Estate

    The residential real estate segment in India is expected to remain relatively stable, as domestic investors continue to be a significant driving force for the sector.

    A short-to-medium-term impact on the flow of funds and businesses from Israel to India is a possibility, according to Amit Goenka. However, he stresses that a comprehensive analysis of the global economy is required to determine the extent of this impact.

    “Investment opportunities in European and U.S. markets are currently less attractive due to ongoing global challenges. Therefore, after China, the Indian economy presents the next growth opportunity for global investments, including real estate. Indo-Israeli investments in this sector are likely to maintain their momentum, albeit at a slower pace,” Goenka added.

    Additionally, real estate consulting firm ANAROCK Group cautions that even if the conflict persists over an extended period, the real estate sector may experience minimal effects, provided the war does not escalate and involve other Western countries.

    Impact on Input Prices and Affordability

    Following the onset of the conflict, the International Monetary Fund (IMF) stated that a 10 percent increase in oil prices would result in a 0.15 percent reduction in global economic growth and a 0.4 percent increase in global inflation.

    Anshul Jain, Managing Director for India & South East Asia at Cushman & Wakefield, believes that a prolonged conflict and instability in the region have the potential to influence oil prices, creating uncertainty in the global economy.

    “Such volatility is bound to have an impact on inflation and trade balances. This, in turn, may affect the real estate sector, as it will lead to a longer wait before central banks reduce borrowing rates, and mortgages will continue to be expensive,” he added.

    Other experts have pointed out that property prices have already been impacted by increased inflation both in India and globally.

    According to ANAROCK Research, in response to rising input costs and significant sales growth, average residential property prices across the top seven cities collectively recorded double-digit annual growth of 11 percent, rising from Rs 6,105 per square foot in Q3 2022 to approximately Rs 6,800 per square foot in Q3 2023. On a quarterly basis, average prices in the top seven cities increased by 5 percent, as stated by Anuj Puri, Chairman of ANAROCK Group.

    However, Puri also noted that inflation remains under control in India, prompting the Reserve Bank of India to maintain unchanged repo rates for the third consecutive time. This development is viewed positively by homebuyers and contributes to overall sentiment in the housing market.

    Also Read: PE Investments in Indian RE Register Decline of ~12% in 1H FY24 – ANAROCK Capital

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