Credit: EnvatoDiscover the Top 3 Emerging Markets in the Sights of Foreign Investors
Understand the appeal of India, Brazil, and Mexico for foreign investors pursuing higher yields in the next real estate cycle
May 9, 2024Real Estate
Written by Gustavo Favaron
With the expected wave of distressed commercial real estate opportunities in core markets like the US and Europe emerging as more of a small ripple, alongside shifting usage trends that continue to perplex the industry, investors find themselves locked in wait-and-see mode - opening the window for entry into certain increasingly mature emerging markets.
Although the number of global real estate investors with a strong appetite for these markets is currently low, my conversations with top industry leaders and GRI Club’s market research lead me to anticipate that India, Brazil, and Mexico will benefit from a strong influx of capital, with interesting prospects for higher returns once interest rates start dropping.
Of course, this activity I’m referring to would be taken by the kind of capital managed by players with an appetite for higher risks directly linked to countries that could be exposed to political, economic, and currency instability, not to mention potentially daunting levels of bureaucracy.
The first reason for the prominence of these three markets has been the significant decline in the appeal of many key competitors due to major challenges being faced by former BRICS powerhouses - China, Russia, and South Africa.
Foreign investor interest in China hit a three year low in 2024, with a significant decline in interest in the country’s property market resulting from the real estate crisis exposed by the Evergrande and Country Garden scandals.
China grapples with serious economic freedom challenges in an environment that was already considered somewhat inhospitable to international players. The demographic decline, slowing GDP growth, worsening geopolitical tensions, and the structural real estate crisis certainly remove it from consideration - starkly contrasting its previous status as investors' darling.
Even before the full scale invasion of Ukraine, Russia was already a question mark for many global investors looking for opportunities in emerging markets, but with the war still raging two years later and new sanctions imposed regularly, Putin's country is no longer in the picture at all.
Although the real estate market in South Africa has demonstrated resilience, I still don’t see investors eyeing the country as a particularly viable option at present due to factors such as unemployment hitting above 32% and rising, continuing load-shedding, and an economy that grew just 0.1% in the last quarter.
With these competitors falling by the wayside, new contenders are emerging from the Global South to take their place.
The recently released 2024 Kearney FDI Confidence Index offers more insights into why India, Brazil, and Mexico are set for big opportunities, with Brazil (19th) and Mexico (21st) returning to the list of top 25 most attractive countries in the world for investment after missing the list last year, while India sits at slightly ahead in 18th place.
Focusing exclusively on emerging markets clarifies the picture further, putting India, Brazil, and Mexico into fourth, fifth, and sixth places respectively. And with responses showing that 88% of those asked plan to increase their investments over the coming three years, these prospects are certainly worth considering in more detail.
The vision that India will receive a lot of attention from foreign investors in the coming years is further backed up by the latest announcement from Blackstone - which already has USD 1 trillion in AUM globally, including USD 50 billion in India alone - about their plan to invest an additional USD 25 billion over the next 5 years.
Blackstone’s COO, John Gray, who has previously met with and spoken to GRI Club members in private, said that India will remain their third biggest investment destination, behind only the US and the UK.
Brookfield is another global institutional investor with big goals for India, recently announcing plans to deploy over USD 10 billion in India's real estate sector over the next three to five years, doubling its assets under management in the country. Brookfield aims to diversify into housing, industrial, and retail sectors, aligning with India's growing economy.
At the same time, the 2024 Asia Pacific Investor Intentions Survey from CBRE (which has USD 90 billion in AUM in India) reveals that India remains the number one destination for foreign capital into APAC’s emerging markets, with Mumbai and Delhi standing out as the leading cities.
2023 also saw an increase in Japanese real estate funds moving to India. Notoriously diligent with their investments, this is a strong sign that opportunities in the country have a reliable potential for promising returns.
Foreign direct investment remains robust, propelled by increased stability and opportunities in Brazil's service sector and rising commodity prices, with forecasts indicating higher levels compared to the previous year.
Factors such as growing consumer confidence, robust GDP expansion, and government initiatives focusing on affordable housing and urban renewal projects contribute to a positive outlook for residential and commercial real estate sectors.
Rising real estate prices, particularly in urban areas and tourist destinations, coupled with a shortage of inventory, indicate strong potential for investors to capitalise on Brazil's dynamic market and contribute to its economic growth. However, challenges such as government fiscal target non-compliance, institutional tensions, and pending tax reforms warrant attention.
One major appeal of China and Russia before the development of the current circumstances was a feature that large global real estate investors require to enter a market - scalability. This is something which both Brazil and India can bring to the table.
Mexico has experienced major transformations, evolving from a period of recurring crises to becoming a global economic and trade leader, with a GDP nearing USD 2 trillion. Despite the clear economic disparities between northern and southern regions, the country's current federal administration aims to address these imbalances through strategic infrastructure initiatives.
Along with the growth of nearshoring in the country, recent administrations have focused on promoting large infrastructure projects to reduce economic disparities and drive development, underscoring Mexico's potential to become a pivotal hub in global logistics.
The influx of FDI into Mexico has already reached a record high, hitting over USD 36 billion at the end of 2023. This represents an increase of 27% over the year before and serves as a strong indicator of growing international investor confidence in the country following government initiatives to boost competition and reduce bureaucratic slowdown for such groups.
Although offering less scalability, Mexico boasts a sophisticated real estate industry, particularly in REITs, that possibly surpasses both Brazil and India. However, potential concerns include political uncertainty with the departure of the current president and questions regarding energy and infrastructure readiness for further development.
The resurgence of outbound real estate investment from the GCC is largely fueled by the region's energy sector performance, with the IMF projecting substantial oil revenues over the next four years. Portfolio diversification remains a key objective, with a shift towards new economic sectors and alternative assets.
While global investor sentiment faces headwinds, the relatively healthy economic conditions in the GCC nations maintain confidence and appetite for global investment opportunities. The GCC real estate sector is experiencing significant growth, with projects valued at USD 1.68 trillion in 2024, up from USD 1.38 trillion in 2023, according to a CBRE report.
FDI into the region has already seen a huge surge, with the UAE moving from 18th to 8th position and Saudi Arabia jumping up to 14th from 24th since last year according to Kearney’s Index. Among emerging markets this moves them up to 2nd and 3rd place respectively.
In the fifteen years that my job has been to talk to top leaders from the real estate industry and get their perceptions about where the world is going, I can comfortably say that I have never felt so much interest in the GCC countries. Where fund managers would previously only consider the region as a source of capital, there is increasing interest in exploring opportunities to deploy capital in these nations as well.
This was made especially evident during my recent visit to Oman, where I spoke at the Oman Real Estate Conference 2024 and had the opportunity to chat with industry titans from across the GCC region, all while witnessing the impressive appetite for new deals and developments first hand.
GRI is moving closer to those players who are instrumental for opening business in the region to prepare the land for a strong exchange of opportunities and ideas. A week of meetings between GRI Club members and the top leaders in the region is being organised as this material is published. More details to come.
We are gearing up for this new global capital flow, understanding that our responsibility is to facilitate dialogue between local players and the newcomers to these countries. In practical terms, we have been mapping out all the global investors set to penetrate these special markets, while at the same time increasing our leading presence in each region.
With thousands of members not only in Europe and the US but across both developed and emerging markets, GRI Club will once again provide a gateway for investors to meet and forge valuable relationships with the leading players in India, Brazil, and Mexico over the coming months and years.
GRI Club’s objective is to enable a fast learning curve and simplify the process of identifying local partners to contribute to solid real estate growth and the generation of wealth and benefits for these emerging markets. Our research team has studied these markets extensively and, in the next few weeks, we will be sharing more information about why we believe these markets will be an increasing presence on the radar of global investors.
Stay tuned.
With the expected wave of distressed commercial real estate opportunities in core markets like the US and Europe emerging as more of a small ripple, alongside shifting usage trends that continue to perplex the industry, investors find themselves locked in wait-and-see mode - opening the window for entry into certain increasingly mature emerging markets.
Although the number of global real estate investors with a strong appetite for these markets is currently low, my conversations with top industry leaders and GRI Club’s market research lead me to anticipate that India, Brazil, and Mexico will benefit from a strong influx of capital, with interesting prospects for higher returns once interest rates start dropping.
Of course, this activity I’m referring to would be taken by the kind of capital managed by players with an appetite for higher risks directly linked to countries that could be exposed to political, economic, and currency instability, not to mention potentially daunting levels of bureaucracy.
Narrowing Options
If the range of options for deploying capital in emerging markets seemed overwhelming in the past, the current geopolitical arena has served to narrow the list significantly, with India, Brazil, and Mexico standing out at the top.The first reason for the prominence of these three markets has been the significant decline in the appeal of many key competitors due to major challenges being faced by former BRICS powerhouses - China, Russia, and South Africa.
Foreign investor interest in China hit a three year low in 2024, with a significant decline in interest in the country’s property market resulting from the real estate crisis exposed by the Evergrande and Country Garden scandals.
China grapples with serious economic freedom challenges in an environment that was already considered somewhat inhospitable to international players. The demographic decline, slowing GDP growth, worsening geopolitical tensions, and the structural real estate crisis certainly remove it from consideration - starkly contrasting its previous status as investors' darling.
Even before the full scale invasion of Ukraine, Russia was already a question mark for many global investors looking for opportunities in emerging markets, but with the war still raging two years later and new sanctions imposed regularly, Putin's country is no longer in the picture at all.
Although the real estate market in South Africa has demonstrated resilience, I still don’t see investors eyeing the country as a particularly viable option at present due to factors such as unemployment hitting above 32% and rising, continuing load-shedding, and an economy that grew just 0.1% in the last quarter.
With these competitors falling by the wayside, new contenders are emerging from the Global South to take their place.
The recently released 2024 Kearney FDI Confidence Index offers more insights into why India, Brazil, and Mexico are set for big opportunities, with Brazil (19th) and Mexico (21st) returning to the list of top 25 most attractive countries in the world for investment after missing the list last year, while India sits at slightly ahead in 18th place.
Focusing exclusively on emerging markets clarifies the picture further, putting India, Brazil, and Mexico into fourth, fifth, and sixth places respectively. And with responses showing that 88% of those asked plan to increase their investments over the coming three years, these prospects are certainly worth considering in more detail.
Why India?
India has the fastest growing economy in the world, with projections for it reaching a GDP of USD 5 trillion in the next three years to become the world’s third largest economy, while expectations for 2030 could see it reaching USD 7 trillion.The vision that India will receive a lot of attention from foreign investors in the coming years is further backed up by the latest announcement from Blackstone - which already has USD 1 trillion in AUM globally, including USD 50 billion in India alone - about their plan to invest an additional USD 25 billion over the next 5 years.
Blackstone’s COO, John Gray, who has previously met with and spoken to GRI Club members in private, said that India will remain their third biggest investment destination, behind only the US and the UK.
Brookfield is another global institutional investor with big goals for India, recently announcing plans to deploy over USD 10 billion in India's real estate sector over the next three to five years, doubling its assets under management in the country. Brookfield aims to diversify into housing, industrial, and retail sectors, aligning with India's growing economy.
At the same time, the 2024 Asia Pacific Investor Intentions Survey from CBRE (which has USD 90 billion in AUM in India) reveals that India remains the number one destination for foreign capital into APAC’s emerging markets, with Mumbai and Delhi standing out as the leading cities.
2023 also saw an increase in Japanese real estate funds moving to India. Notoriously diligent with their investments, this is a strong sign that opportunities in the country have a reliable potential for promising returns.
Why Brazil?
Brazil presents enticing investment opportunities with its geopolitical neutrality, diverse investment options beyond the Rio-São Paulo axis, mature real estate investment cycles, and a growing REIT industry fostering market liquidity, alongside economic indicators that should appeal to certain investors seeking higher returns.Foreign direct investment remains robust, propelled by increased stability and opportunities in Brazil's service sector and rising commodity prices, with forecasts indicating higher levels compared to the previous year.
Factors such as growing consumer confidence, robust GDP expansion, and government initiatives focusing on affordable housing and urban renewal projects contribute to a positive outlook for residential and commercial real estate sectors.
Rising real estate prices, particularly in urban areas and tourist destinations, coupled with a shortage of inventory, indicate strong potential for investors to capitalise on Brazil's dynamic market and contribute to its economic growth. However, challenges such as government fiscal target non-compliance, institutional tensions, and pending tax reforms warrant attention.
One major appeal of China and Russia before the development of the current circumstances was a feature that large global real estate investors require to enter a market - scalability. This is something which both Brazil and India can bring to the table.
Why Mexico?
Of these three emerging markets, Mexico stands out for its strategic geographical position and favourable trade agreements, such as NAFTA, facilitating commerce with the United States and attracting significant nearshoring opportunities.Mexico has experienced major transformations, evolving from a period of recurring crises to becoming a global economic and trade leader, with a GDP nearing USD 2 trillion. Despite the clear economic disparities between northern and southern regions, the country's current federal administration aims to address these imbalances through strategic infrastructure initiatives.
Along with the growth of nearshoring in the country, recent administrations have focused on promoting large infrastructure projects to reduce economic disparities and drive development, underscoring Mexico's potential to become a pivotal hub in global logistics.
The influx of FDI into Mexico has already reached a record high, hitting over USD 36 billion at the end of 2023. This represents an increase of 27% over the year before and serves as a strong indicator of growing international investor confidence in the country following government initiatives to boost competition and reduce bureaucratic slowdown for such groups.
Although offering less scalability, Mexico boasts a sophisticated real estate industry, particularly in REITs, that possibly surpasses both Brazil and India. However, potential concerns include political uncertainty with the departure of the current president and questions regarding energy and infrastructure readiness for further development.
What else do we see on the horizon?
One more element must be added to this analysis. It is no secret that The Gulf Cooperation Council (GCC), which brings together six Arab countries – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates, is attracting a lot of attention from fund managers and players looking for opportunities and capital, but how does the region really stack up?The resurgence of outbound real estate investment from the GCC is largely fueled by the region's energy sector performance, with the IMF projecting substantial oil revenues over the next four years. Portfolio diversification remains a key objective, with a shift towards new economic sectors and alternative assets.
While global investor sentiment faces headwinds, the relatively healthy economic conditions in the GCC nations maintain confidence and appetite for global investment opportunities. The GCC real estate sector is experiencing significant growth, with projects valued at USD 1.68 trillion in 2024, up from USD 1.38 trillion in 2023, according to a CBRE report.
FDI into the region has already seen a huge surge, with the UAE moving from 18th to 8th position and Saudi Arabia jumping up to 14th from 24th since last year according to Kearney’s Index. Among emerging markets this moves them up to 2nd and 3rd place respectively.
In the fifteen years that my job has been to talk to top leaders from the real estate industry and get their perceptions about where the world is going, I can comfortably say that I have never felt so much interest in the GCC countries. Where fund managers would previously only consider the region as a source of capital, there is increasing interest in exploring opportunities to deploy capital in these nations as well.
This was made especially evident during my recent visit to Oman, where I spoke at the Oman Real Estate Conference 2024 and had the opportunity to chat with industry titans from across the GCC region, all while witnessing the impressive appetite for new deals and developments first hand.
GRI is moving closer to those players who are instrumental for opening business in the region to prepare the land for a strong exchange of opportunities and ideas. A week of meetings between GRI Club members and the top leaders in the region is being organised as this material is published. More details to come.
GRI Leads the Way
While I don't see a large volume of transactions taking place in 2024, I believe that now is the time to develop the foundations, knowledge, and relationships that will result in a relevant volume of capital flow in 2025.We are gearing up for this new global capital flow, understanding that our responsibility is to facilitate dialogue between local players and the newcomers to these countries. In practical terms, we have been mapping out all the global investors set to penetrate these special markets, while at the same time increasing our leading presence in each region.
With thousands of members not only in Europe and the US but across both developed and emerging markets, GRI Club will once again provide a gateway for investors to meet and forge valuable relationships with the leading players in India, Brazil, and Mexico over the coming months and years.
GRI Club’s objective is to enable a fast learning curve and simplify the process of identifying local partners to contribute to solid real estate growth and the generation of wealth and benefits for these emerging markets. Our research team has studied these markets extensively and, in the next few weeks, we will be sharing more information about why we believe these markets will be an increasing presence on the radar of global investors.
Stay tuned.
