Institutional investments in real estate sector touched $5.5 billion in 2018, the highest since 2009, on the back of transformative policy reforms and a growing risk appetite of foreign and domestic institutional investors, a JLL report said today.
Institutional investments in 2014-2018 doubled to $20.3 billion compared to $9.4 billion during 2009-2013, said the report titled ‘Institutional Flow of Funds to Indian Real Estate: Trends and Progress’.
“The trend suggests that the market offers tremendous growth opportunities to foreign and domestic investors. Against the backdrop of an ongoing policy overhaul, rising investor confidence, enhanced transparency, gradual recovery in the residential segment, and an increasing demand for grade A commercial office space, the investment momentum is only expected to grow manifold from its current levels,” said Ramesh Nair, CEO and Country Head, JLL India.
According to the report, the real estate sector has attracted nearly $30 billion of institutional investments from January 2009 till October 2018.
Mumbai leads
In terms of cities, Mumbai, Delhi NCR and Bengaluru have been the preferred markets accounting for over two-third of institutional investments from 2009 till 2018. With 42 per cent share of investments worth $8.6 billion in 2014-18, Mumbai is clearly ahead of other cities. It is followed by Delhi NCR and Bengaluru with $4.4 billion and $2.6 billion respectively.
The report said private equity investors have contributed 80 per cent or more of the overall institutional investment in the last decade.
Commercial segment preferred
Commercial office segment is emerging as the most favourable asset class for institutional investors with a five-fold increase in capital flows to $8.2 billion in 2014-18 from $1.6 billion in the preceding five year period starting 2009. With non-IT/ITeS companies emerging as demand drivers, share of institutional investments in non-IT office space has jumped manifold, ranging between 70-85 per cent during 2016-18 as compared to 20 per cent in 2009.
“One of the major drivers for the growing interest of investors in the commercial office space has been the government’s move to bring in progressive modifications in India’s REIT policy in last three years, making it more market friendly. As a result, global investors have invested significant capital in acquiring large office assets for building their REIT portfolios in India,” said Samantak Das, Chief Economist and Head of Research & REIS, JLL India.
2017 and 2018 recorded maximum investments of 5.9 billion in the office space, amounting to 72 per cent of the total investments in the commercial office segment during 2014 to 2018. Besides commercial office segment, retail is another asset class that has also witnessed a sharp rise in investments. From just $134 million during 2009-13, investments in retail surged eleven times to $1.6 billion between 2014 and 2018.
NBFCs lead lending
With lending by banks to real estate sector slowing down since FY2011-12, the non-banking financial companies and housing finance companies increased lending from $13.4 billion in FY12 to 40.2 billion dollar in FY18. This translates to a CAGR of 20, per cent with the proportion of financing by NBFIs increasing to 58 per cent from 36 per cent during the period.
Developers have preferred to refinance existing loans to reduce interest costs. During FY2017 and FY2018, an estimated $14.4 billion was disbursed by NBFCs to the real estate sector. On the recent liquidity crisis being faced by NBFCs, the report notes that, though it is not a systemic risk, the real estate sector will face funding issues in the short-term.