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Institutional investors’ appetite for Indian real estate assets continues unabated

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Institutional investors' appetite for Indian real estate assets continues unabated

Are you surprised with the frenetic pace of apartment registrations in Mumbai? Well, you aren’t alone in hunting for deals on property portals. Institutions and bulge-bracket funds are also doing just that, as Indian real estate emerges from seemingly bottomless depths of the Covid sinkhole.

Institutional investments into the sector rose 17% and private equity investments recorded 24% on-year growth in the September quarter, according to property consultants JLL India and Savills India, respectively.

While Mumbai leads as the biggest investment destination, investors have shown preference for data centers and residential segments.

“A close analysis of investments during the quarter reveals that they have been more balanced, with the residential sector accounting for 29% of the total investments, followed by alternative sector, Data Centre (DC) accounting for a 22% share,” said Lata Pillai, Managing Director and Head, Capital Markets, India, JLL. “Mixed-use projects of residential and commercial accounted for 19% of the total investments. Investments during the quarter have been broad-based.”

However, both total investment volumes and private equity deals registered during the September quarter are lower sequentially.

This is attributed to delays in the deal process influenced by travel restrictions owing to the pandemic. However, some funds with long term horizons have upped their risk appetite by investing in opportunistic asset portfolios.

“As the vaccination drive has picked up speed, we will see business confidence gaining momentum. In spite of the pandemic, 2021 has continued to witness some marque deals across real estate segments,” said Diwakar Rana, Managing Director, Capital Markets, Savills India.

Interestingly, listed Real Estate Investment Trusts (REITs) continued to raise low-cost debt and use the proceeds to acquire assets at attractive valuations.

“We have taken significant advantage of the lowering interest rates. Our first debt issuance in May 2019 was at 9.4% and the last bond issue in January this year was at 6.4% for a 3-year paper, a clear 300 basis-point benefit,” said Aravind Maiya, CFO, Embassy REIT. “The more the debt cost reduces, there are more distributable funds for unitholders.”

Investment statistics are likely to improve even further as investors are expected to take a cue from improvement in operational metrics of various asset classes such as commercial office space and residential segments.

The cautious unlocking of the economy, increased pace of vaccination and affordability are expected to push further investments.

“The recent Moody’s upgrade of India’s sovereign rating outlook to “Stable” from “Negative” is likely to be reflected in the real estate sector investments during the last quarter of 2021. The large dry powder, low-interest rates, and continued monetary stimulus are expected to drive broad-based investment growth,” said Samantak Das, Chief Economist and Head of Research & REIS (India), JLL India.

Among alternative asset classes, Data Centres have been attracting high interest as the industry is expected to double its capacity to 1007 MW by end of 2023 from 499MW as of first half of 2021. Investors and data center players have increased their commitments during the last 6 months to set up new data centres indicating strong growth potential. Investment plans to the tune of $3 billion highlight the growth potential of this segment.

With increased investments in the DC industry and capital flow in select residential projects, Mumbai led the investment pie with a 39% share.

Bengaluru recorded entity-level investment in a mixed-use (residential and commercial) project leading to a 19% share while NCR-Delhi with transactions in the residential and warehousing segment also had a similar share.

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