Institutional investors and HNIs have distinct investment strategies, whether they are investing in equity or debt instruments. With global and domestic investors diversifying their portfolios across geographies, asset classes and the risk spectrum, it is important that stakeholders be aware of the pulse of the market so that they can adopt appropriate investment strategies to uncover value and drive returns.
Backed by healthy demand in office, warehousing and retail sectors, India’s real estate industry witnessed impressive growth in 2019. As we step into the new financial year, it’s time to look back and review some of the trends that emerged and what the future entails for the investment market in India.
2019 recorded an investment of approx. USD 6 billion in real estate, a 27% increase compared to the previous year, with both institutional investors and developers being reasonably active. The Office sector thrived to be a key driver of investments, with about 40% share of total investments. India’s formidable position as a preferred corporate destination and growing need for space from various sectors resulted in outstanding growth in 2019. In fact, Office sector’s gross leasing was at an all-time high of 60 million sq. ft. during the year.
As demand remains strong, developers are aiming to strengthen their presence in major cities. As a result, land transactions are gaining prominence and garnered the second highest share in total investments during the year. There was significant focus on greenfield development sites for office and retail sector from large institutional investors.
In the Debt market, banks and other financial institutions restricted themselves to lease rent discounting and construction finance. However, as the NBFC crisis continues, liquidity remains an issue for most players. The government has introduced various measures to ease liquidity pressure, the impact of which would unfold over the next few quarters. The industry also witnessed increased activity by special situation funds and stressed funds in the market. It is likely that they will fill part of the current void in the market.
In addition, a special fund (AIF) for affordable and mid income housing fund came into effect in 2019. This fund is expected to provide priority debt financing for completion of stalled housing projects that are in the affordable and middle-income housing sector. It is expected to provide relief to developers that require funding to complete unfinished projects and ensure delivery of homes to buyers.
With the real estate sector more organized, transparent, and profitable, it will continue attracting investments from global and domestic investors. The launch of first Real Estate Investment Trust (REIT) early this year has provided significant comfort to institutional investors as it offers an efficient exit option to them.
With comparatively lower sales of housing projects and a financial crunch, smaller developers are looking for consolidation through joint developments and joint ventures with established developers; a trend which we expect will continue in 2020. Investment activity in residential is likely to improve significantly with the advent of special situation investors.
As demand for quality office (and retail) space increases with occupiers preferring to future-proof portfolios by pre-leasing spaces, “Core Assets” will continue to attract interest from institutional investors in 2020 as well.
The most encouraging sign is the increasing number of investors aligning their focus to greenfield development in Retail, Warehousing and Office sectors including land acquisitions and forward sales. Further, with emerging sectors such as student housing, data centers and co-living gaining traction in recent times, the real estate industry is poised for very interesting times ahead.
(This article has been written by Gaurav Kumar, Managing Director, Capital Markets and Residential Business, CBRE South Asia)