Foreign and local funds home in on Indian real estate
MUMBAI: In the backdrop of an ongoing transformation in business environment, Indian real estate is witnessing a robust rise in investment inflow as both foreign and domestic institutional investors are infusing more funds into the sector.
The Indian property market has posted a 40% on-year jump in inflow of funds since the beginning of this year. Institutional investors, including private equity, pension funds, sovereign funds, domestic investors, and non-banking finance companies have pumped in $3.15 billion in the country’s real estate between January and June end, showed a Knight Frank India study.
According to a separate study by JLL India, India has witnessed private equity inflow of Rs 16,008 crore until June this year compared with Rs 15,601 crore a year ago.
Over the past 18 months, the government has launched a number of policy initiatives including the implementation of the Real Estate Regulator Act (RERA), implementation of the Goods and Services Tax (GST), Real Estate Investment Trusts and the demonetisation drive. “The global economy has started recuperating with improving job prospects, decline in unemployment rates and rising rate of inflation in the developed economies. Investors in these countries are expecting diminishing inflation adjusted returns. With the strengthening of domestic currency they are finding assets in emerging markets (EMs) cheaper from an investment perspective,” said Samantak Das, Chief Economist and National Director, Research, Knight Frank India.
“A slew of reforms unleashed by the government is changing the investment scenario in the country and has made India one of the most attractive emerging markets from an investment point of view. So much so that a comparison between debt and equity investments seen between 2014 and first half of 2017, which stand at more than Rs 98,000 crore, are higher than the Rs 95,000 crore seen during an entire decade from 2003 to 2013,” said Shobhit Agarwal, MD – Capital Markets & International Director , JLL India.
Among all the segments, commercial realty has witnessed the highest interest from investors owing to falling capitalization rates. With lowyield environment and rates further expected to go down, yield-generating commercial assets have been turning out to be a good bet to generate healthy risk adjusted returns.
“Excess liquidity in the market has created compression in interest rates that will lead to fall in capitalization rates in future, hence locking such investments at higher yields will be helpful for appreciation in capital values of these assets. Corporates are also increasing head count as they are focused on growth due growing GDP numbers thus leading to higher absorption. Overall, it has a momentum impact in investment for commercial real estate,” said Rubi Arya, executive vice-chairman of Milestone Capital Advisors.
Milestone Capital Advisors itself has invested in two offices in this quarter and are aggressively scouting for more opportunities.
Global investors, including Blackstone Group, Singapore’s sovereign fund GIC, Canada Pension Plan Investment Board (CPPIB), Goldman Sachs and Qatar Investment Authority have already been investing in Indian realty assets for the past few years. In addition to this, more funds are eyeing investment and alliance opportunities.