Israeli-Hamas Conflict is a Challenge For Israeli Investments in Indian Real Estate Sector

Israeli-Hamas Conflict is a Challenge For Israeli Investments in Indian Real Estate Sector

The recent multifront attack on Israel by the Hamas militant group, a significant curveball for the geopolitical landscape, is poised to have ripple effects on India’s thriving real estate sector. Industry specialists highlight that the funds flowing from Israeli firms into Indian real estate, which has been witnessing a robust 20-30% annual growth, may face a short-term hiccup due to this unexpected conflict.

The Evolution of Israel's Investment in Indian Real Estate

Post the establishment of diplomatic ties between India and Israel in 1992, there has been an exponential growth in bilateral trade and economic cooperation. The merchandise trade has skyrocketed from a mere $0.2 billion in 1992 to a whopping $10.1 billion in FY 2022-23, as per statistics from the Indian Embassy in Tel Aviv.

Although real estate forms a minor chunk of this trade, the Federation of the Indo-Israeli Chambers of Commerce (FIICC) highlighted the annually growing inflow of funds from Israeli entities which is approximately $10 million to $30 million. Their data indicated that the recent trend of indirect investments from Israeli companies, mainly channeled towards Real Estate Investment Trusts (REITs) and similar investment vehicles, began gaining traction around 2015-16.

Furthermore, by the year 2010, several Israeli companies had rooted their investments particularly in cities like Hyderabad. One notable instance is the investment of about Rs 500 crore by PBEL Property Development Ltd, a joint venture initiative with an Israeli entity, although the Israeli partners concluded their association in 2016.

Implications on India's Real Estate Ecosystem

Despite the concerns, the residential sector in India remains buoyant, primarily fueled by a robust domestic investor base. However, with the recent developments, there could be a momentary shift of businesses and capital from Israel to India. Yet, a comprehensive analysis of the global economic dynamics is essential to fathom the true magnitude of this impact.

Interestingly, in the current scenario, Europe and the US don’t seem as attractive for investment due to ongoing global disturbances. As a result, post China, India emerges as a lucrative avenue for global investments, including in the real estate sector. This sentiment indicates that even if there's a slowdown, the momentum of Indo-Israeli investment in real estate will persist.

ANAROCK Group, a notable real estate consultant, chimed in with optimism. They believed that as long as the conflict remains restricted and doesn't involve western nations, the real estate sector's perturbations will be minimal.

Pricing and Affordability: The Domino Effect

However, the unfolding conflict brings along its set of challenges. The International Monetary Fund (IMF) warned about potential ramifications on the global economic health, hinting at the possibility of oil prices soaring by 10%. This, as a consequence, could lower global economic growth by 0.15% and inflate global inflation by 0.4%.

Anshul Jain of Cushman & Wakefield expressed concerns over such volatility influencing inflation and trade balance. This could lead to pricier mortgages and extended wait times for central banks to slash borrowing rates.

Adding to this, ANAROCK Research indicated that due to escalating input costs coupled with sales growth, there has been a notable surge in average residential property prices across India's top 7 cities. Despite these challenges, inflation in India remains in check, evidenced by the Reserve Bank of India's decision to maintain the repo rates.

Conclusion:

In the grand scheme of things, while there are potential challenges on the horizon, India's real estate sector has shown resilience and adaptability in the past. With a blend of domestic investments and the allure of the Indian market to foreign investors, the sector is poised for continued growth, albeit with a watchful eye on global events.