Investments into Indian real estate rose nearly 9 per cent in 2019 to $6.2 billion (Rs 43,780 crore) as foreign private equity (PE) investors, including pension and sovereign funds, pumped in money despite the economic slump. Foreign funds accounted for about 78 per cent of the overall investments in 2019, the highest share ever, a new research from Colliers International shows.
There is more growth ahead in 2020, albeit at a slower pace. Colliers predicts that in 2020, investments inflows would total $6.5 billion (Rs 46,170 crore) or a growth of about 5 per cent.
The $6.2 billion investment in 2019, however, is lower than what Indian real estate received in 2017 - $8 billion. According to Colliers, since 2008, India's real estate sector recorded overall inflows of $56.6 billion (Rs 4,10,000 crore). "After 2014, a slew of reforms included enforcement of the Real Estate Regulatory Authority, introduction of the Goods and Services Tax (GST), roll-out of the Insolvency and Bankruptcy Code, and a relaxation of foreign direct investment norms. Taken together, these have boosted investor interest in Indian real estate," the firm says.
Mumbai led the investments with a 25 per cent share of the inflows in 2019. "The city continues to be the most sought after investment destination in the country due to a wide range of asset classes, providing diversification to investors' portfolio," the firm states. Meanwhile, Bengaluru toppled Delhi-NCR to claim the second spot with inflows of $655 million (Rs 4,650 crore) in 2019.
"We note that the strong appetite for office assets has catapulted Bengaluru's position to the second spot in 2019. We believe that over the next two years, Bengaluru should continue to be among the top two most attractive markets for investors, as funds continue to remain concentrated in commercial office assets," Colliers states.
Commercial or office real estate is booming for several reasons. The supply is steadily increasing, so have the absorption rates. Vacancies are down for the top grade buildings while rents in many markets have risen. Unlike the residential side, the office market is characterised by transparency, and in most cases, on-time delivery.
"While the office sector is recording solid growth in investments, India's residential real estate is experiencing prolonged slowdown in investment volume, accounting for only 9 per cent of the total investments in 2019," Colliers states in the report.
"We expect investments in the residential segment to remain soft during 2020, as liquidity concerns in non-banking financial companies (NBFCs) remain. Over the last few years, residential developers, including those with weak credit lines, were heavily reliant upon NBFCs to fund their projects. We believe that investors should continue to adopt a conservative approach towards residential assets, barring a few top-tier developers, as the demand in the sector has not fully recovered yet," the firm advises.
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