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India’s real estate sector primed for institutional investors

Institutional investors continued to show interest in Indian real estate despite COVID-19. The sector offers plenty more opportunities in 2021

The annual performance received major support from the fourth quarter’s $3.5 bn total Average investment per deal rose 40% year on year in 2020 to $194 million In India, about 15% of total jobs are generated by the real estate sector

Institutional investors continued to show interest in Indian real estate with a total of $5 billion in investments, equivalent to 93% of transactions witnessed in 2020, despite a sudden halt brought on by the pandemic, showed data from JLL India. 

The annual performance received major support from the fourth quarter’s $3.5 bn total, knowing office assets accounted for a major share of investments during that year. 

The uncertainty over income and yield stability of commercial properties due to the pandemic had led to a pullback in investments. 

Indian commercial real estate witnessed a strong appetite from global investors, according to Knight Frank.

India’s real estate sector claimed an 11% share of the total private equity (PE) investments in the country in 2020 with $4 billion, closing 27 deals during the year. 

The share of office PE investments has jumped remarkably over the last decade from 24% in 2011 to 62% in 2020 while warehousing PE investments jumped from 6% to 24% during the same period respectively. 

The report highlighted that the average investment per deal rose 40% year on year in 2020 to $194 million against $140 mn in 2019. The surge can be primarily attributed to global institutional investors as they continued to commit large capital to market deals. 

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Various structural reforms during the last decade have brought much-needed transparency and accountability to the sector.

A deeper analysis of institutional investments in 2020 indicates that the recovery has been narrow-based, as 27 deals were transacted in 2020 over 54 in 2019. 

Two large portfolio deals with an estimated value of $3.2 billion accounted for 65% of the total investments in 2020. 

The Blackstone Group taking over 21 million sq. ft of completed and under construction office, retail, and hospitality assets from Prestige Estate Ltd for an estimated $1.2 bn, and the Brookfield Group’s entering into an agreement with RMZ Developers to acquire around 12.5 million sq. ft of office and co-working assets for around $2 bn indicate that office assets account for a major share of the portfolio deals.

“India’s office sector has witnessed continuous growth over the last four years with the average annual net absorption crossing 30 mn sq. ft, leading to steady rentals and capital appreciation till the onset of the pandemic. Global investors, looking for stable yields and regular returns, believe that the technology-driven office space demand is expected to grow further and keep absorption robust,” said Dr. Samantak Das, Chief Economist and Head of Research & REIS (India), JLL.

India’s Grade-A office stock of 629 million sq ft as of Q4 2020, with sub-5% vacancy levels in Bengaluru, Hyderabad, Chennai, and Pune as well as in prime sub-markets of Mumbai, Delhi NCR, and Kolkata, make the asset class ideal for investments.

A report by Knight Frank India in December 2020 said that the whopping 60% reduction in stamp duty by the Maharashtra Government saw the registration of residential properties in Mumbai jump over two-fold in December to 18,854 units.

Bengaluru, with 150 million sq ft of Grade-A office stock, has the largest share (23%) of India’s total office stock among its top seven cities. India’s Silicon City is home to major global as well as domestic technology players, technology start-ups, and global in-house centers of multinational companies.  

India’s house price index and real estate contribution 

A global house price index report of Knight Frank, which has tracked mainstream residential prices across 56 countries and territories worldwide, found India slipping seven spots to rank 54th in the July-September period of 2020. 

The report also puts the year-on-year decline in property prices at 2.4%.

In India, about 15% of total jobs are generated by the real estate sector, not to mention ancillary industries that cater to building homes such as cement, steel, aluminum, and the like.