Capital Inflows Jumps Three-Fold into Indian Real Estate

Foreign capital flows into Indian real estate have jumped three times to touch $24 billion during the 2017-2021 period compared to the preceding five years as global investors have shown an increased inclination, buoyed by regulators reforms, said a report by Colliers which has been released in association with FICCI.

While the majority of the inflows have been in the office space, investors are still cautious about the residential sector in the aftermath of the NBFC crisis and the subdued residential sales. The sector has actually seen foreign investment dip by over 50% in the last five years.

Foreign investors, who had previously refrained from investing in the Indian real estate market due to the lack of transparency, started investing in the country with greater optimism from 2017,” Colliers said.

According to the data, foreign investment in real estate stood at $23.9 billion during the 2017-21 period against $7.5 billion during 2012-2016.

Total investments in Indian real estate stood at $49.4 billion during the 2012-2021 period, of which 64 per cent came from foreign investors.

The share of foreign investments in Indian real estate has grown to 82 per cent during 2017-2021, compared to 37 per cent in the preceding five-year period.

During 2017-21, the office sector had a 43 per cent share in total foreign investments, followed by the mixed-use sector accounting for 18 per cent.

The industrial and logistics sector investments stood at third position, surpassing the residential sector.

Foreign investors remained cautious about the residential sector in the aftermath of the NBFC crisis and subdued residential sales, Colliers said.

Alternative assets seeing strong investor interest

During 2017-21, alternative assets saw an inflow of about $1 billion, with a majority of it coming during the pandemic years. Investments in assets such as data centers, flex workspaces, co- living and life sciences in India has surged only in the past five years.
Government policy for data localisation and infrastructure status received for data centres recently are likely to give a boost to the establishment of new data centres in the country.

The Industrial and Logistics sector emerges as the top gainer in 2021

Momentum in Industrial and logistics assets in India has picked up only in the last five years driven by robust demand from E-commerce for modern warehousing facilities.
In 2021, Industrial and logistics assets emerged as the top choice for foreign institutional investors, garnering almost a third of foreign investments ($1.1 bn) surpassing the office sector.
Lack of ready Grade A industrial and logistics parks across tier I and II locations amid high demand scenario has pushed investors to create platforms for the development of modern warehousing facilities in these locations.

REITS is the next big thing

REITs have now been established as a strong alternate financial platform to raise funds in the real estate sector. The introduction of the first REIT in 2019 is changing the way commercial real estate operates. Since 2019, two more REITs have been listed on the Indian bourses, with more entities exploring the option. The government has recently approved foreign portfolio investors to invest in debt securities’ issues by REITs which is likely to expand funding source and will reduce the cost of debt financing for REITs. Market regulator Sebi has also reduced the minimum application value of REITs that provide an attractive opportunity for retail investors.