Wednesday, February 28News That Matters

Institutional investments from domestic investors in realty sector jump 120pc in 2023 to USD 1.5bn: Vestian

New Delhi, 11th Jan: Institutional investments in the real estate sector from domestic investors more than doubled to USD 1.5 billion in 2023, according to Vestian latest report.

The inflow of funds from domestic investors stood at USD 1511 million (USD 1.5 billion) last year, registering a remarkable growth of 120 per cent from USD 687 million in the 2022 calendar year. The share of domestic investors increased to 35% in 2023 from 14% in 2022 amid global headwinds.

On the other hand, the share of foreign investors shrunk over the previous year on account of the macroeconomic slowdown. While foreign investors continued to dominate investments with 65% share in 2023, their share reduced from 79% a year earlier. Nearly 72% of the foreign investments were concentrated in commercial assets, distantly followed by the industrial & warehousing segment with only 15% share.

Institutional Investment by Investor Type (2023 vs 2022)

Investor Type 2022

(USD Mn)

2023

(USD Mn)

2023

(% Share)

2022

(% Share)

Y-o-Y % Change

(2023 vs 2022)

Foreign 3,926 2,733 65% 79% -30%
India-dedicated 687 1,511 35% 14% 120%
Co-investment 360 18 Negligible 7% -95%

Source: Vestian Research

Commercial assets (office, retail, co-working, and hospitality projects) turned out to be the preferred investment option for domestic investors, with 42% concentration of investments, followed by 39% in residential projects.

Shrinivas Rao, FRICS, CEO, Vestian said, “Despite uncertainty in demand across the real estate sector, investments remained robust throughout the year. The optimism of domestic investors kept the real estate market buoyant,  as they continued to show confidence in India’s growth story.”

Significant rise in bank outstanding and easy availability of funds through new investment tools (AIFs, REITs, and InvITs) paved the way for heightened construction activities across the sub-sectors of real estate. As per RBI data, banks’ lending to commercial real estate increased by 38% in Nov’23 as compared to the same period in the previous year. On the other hand, banks’ outstanding for housing, including priority sector housing, increased by 37% during the same period.

However, institutional investments in the real estate sector declined by 12% annually and reached USD 4.3 Bn in 2023. Although investments reached a five-year low, accentuating the cautious stance adopted by foreign investors amid global macroeconomic uncertainty, a resurgence is expected in 2024 on the back of robust performance of the Indian economy and a healthy pipeline of planned infrastructure developments. Stabilizing world economy, robust economic growth in India, huge domestic consumer base, growing emphasis on work-from-office policies, and favourable government policies such as National Logistics Policy and Make in India initiatives are likely to attract foreign and domestic investors to actively participate in India’s growth story.

Shrini further added, “Indian real estate sector is rapidly expanding with the emergence of new asset classes. The requirement for funds is also growing with market expansion. This elevated demand for capital may lead to high returns on investments for investors. In anticipation of high returns, investors may infuse capital into the sector, leading to further growth and expansion, which may further propel the requirement for high-capital investments.”

Institutional Investments in the Real Estate Sector

 Year Institutional Investments (USD Bn)
2019 6.5
2020 5.9
2021 4.8
2022 4.9
2023 4.3

Source: Vestian Research

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