Institutional Flow of Funds to Indian Real-Estate: Trends

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By Ravindra Pai, Managing Director, Century Real Estate.

Introduction

Indian real estate sector has been one of the most preferred investment destinations for institutional investors in recent times. According to an industry report, the real estate sector attracted $30 billion in institutional investments from 2008 to 2018. Indian real estate industry has received investments from various establishments like commercial banks, recognized investors and Non-banking Financial Institutions (NBFIs). These investors include specific real estate investment desks of foreign banks, real estate investors, private equity firms and foreign companies.

Institutional investments

With a series of reforms in Indian real estate, institutional investors continue to show a growing interest in Indian real estate. Institutional investments in Indian real estate have matured over the last decade. Investment growth is driven by factors such as an implementation of progressive policy reforms, stable macro-economic fundamentals, and increasing interest of foreign and domestic institutional investors.

Commercial segment

In recent times, office spaces are not mere physical spaces for the employees but have gradually transformed to spaces that are dynamic and considered as one of the factors which enable a company’s growth. Commercial office segment is emerging as the most profitable for institutional investors, which has seen a significant increase from the past few years. The commercial real estate market has developed in the last decade, with policy reforms, institutional investments, foreign partnerships and growth in the services sector. Apart from IT companies, non-IT companies like start-ups, BFSI, manufacturing are also developing as demand drivers.

There has also been a huge rental revenue difference between commercial and residential real estate which makes it more attractive. The current rental income of commercial properties, including Grade A office spaces in primary locations, is higher than residential properties, even in primary locations. Transparency due to various reforms makes the commercial sector attractive to new global investors. With an increasing demand for Grade A office space, there will be a steady rise in rents and contractual terms will be far more structured.

Retail segment

In addition to the commercial office segment, the retail sector has also witnessed a sharp rise in investments. According to IBEF(India Brand Equity Foundation), India’s retail market is expected to increase by 60 per cent to reach US$ 1.1 trillion by 2020. With tier 1 cities seeing low vacancy and high rentals, the focus has shifted to tier II cities. There has been a faster expansion of organized retail in tier II cities like Coimbatore, Lucknow, Ahmedabad, Mangalore, Mysuru and Chandigarh. Well-known malls are an attractive destination to invest in the Indian retail segment for investors.

Conclusion

Indian real estate continues to see institutional investments in different segments. Although retail has been a driver of growth, investment in office space continues predominantly. Another segment to be looked out for is affordable housing. With key policy incentives and new avenues for investments, the residential segment is interested in achieving the objective of ‘Housing for all’, an initiative by the Government.





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