Global investors show confidence in Indian realty through equity preference

Source: The Economic Times

Global investors’ increased confidence in India driven by government initiatives, reforms-led improved transparency, and accountability in the real estate sector has resulted in higher investment inflow, especially increased equity exposure into the sector.

India's resilience in the face of global economic headwinds became evident as the property sector attracted over $5.8 billion institutional investments across 53 deals in 2023, a 14% increase compared to 2022. Interestingly, equity route continued to dominate investments in real estate at 81% share of these investments, showed a JLL India study.

This clearly indicates the risk appetite for Indian real estate assets among global institutional investors is getting stronger. Global investors continued to be the largest contributors at 63% share of the total investments.

“Inflation and uncertainty about the direction of the global economy did not seem to be a deterrent for institutional investments in India in 2023. Investments continued to cross the $5 billion mark, a trend that has continued since 2018. Multiple rate hikes in the Americas have curbed investment activities from the US and Canada. However, 2023 saw a significant contribution from the Asia Pacific region,” Lata Pillai, Senior Managing Director & Head of Capital Markets, JLL India.

In 2023, the largest contributors were foreign institutional investors with 63% share of the total investments. The market also witnessed a significant increase in investments from domestic domiciled investors to 37% as against an average of 19% in the previous five years.

“Global investment data about India real estate tends to get skewed by a few large deals which typically involve acquisition of large assets like office parks and hence appears as equity but without development risk. On the other hand, investment in residential which is the largest asset class in real estate and with development risk is dominated by debt investments,” said Srini Sriniwasan, MD, Kotak Alternate Asset Managers.

According to him, going forward, India has strong tailwinds in both residential and office markets over the next few years thanks to economic growth and more Global Capability Centres (GCCs) being opened here.

Pillai believes the prospect for the domestic economy currently remains bright and this is expected to remain optimistic in 2024 as well. While the upcoming elections may cause delays in decision-making, the India growth story will continue to be robust, driven by its inherent strengths and continued focus on economic development.

The series of policy initiatives aimed at reforming the property sector including the introduction of Real Estate Investment Trusts (REITs), the Real Estate Regulation and Development Act (RERA), and progressive relaxation in foreign direct investment norms have been attributed for the volume of investments over the last few years.

Americas, the conventional highest contributors in investments, witnessed a major dip to 23% share of investments compared to the high of 43% share in 2022. This was compensated by investments from Asia Pacific, especially Singapore and Japan.

During the year, non-core assets led transaction volumes at 53% of the overall volumes, thus indicating a higher risk appetite and a focus on potentially higher returns by investors.

The office sector continued to lead investments by a huge margin, at 52% share in the total, followed by residential and warehousing at 16% and 13% respectively. Capital flow in the office sector witnessed an increase by 61%--from $1.8 billion 2022 to $3 billion across 15 deals during the year.

Additionally, 2023 witnessed the announcement of $2.8 billion of platform commitments to be invested over the next few years. The largest platform commitment deals last year was between Ivanhoe Cambridge and Mapletree, with an investment capacity of over $1.8 billion, in the space of technology-led offices in India.

While the office sector is likely to continue to be a favoured segment in 2024. newer sectors like warehousing, data centres, student housing etc. will also attract a major share of institutional investments in the years to come.