India’s resilience in the face of global economic adversities became evident as the real estate sector attracted institutional investments of over $5.8 billion across 53 deals in 2023, an increase of 14% per cent compared to 2022. ‘Investing in Tomorrow: The Real Estate Journey to 2023’, JLL India report estimates that investor confidence in the Indian growth story will continue in 2024.
In 2023, the largest contributors were foreign institutional investors with a 63% share in total investments. The US, which has traditionally contributed the most to investments, saw a significant decline in investments to 23% compared to a high of 43% share in 2022.
Also read: Expectations of Budget 2024: ‘Affordability’ top priority for real estate, know the major demands
However, the market saw a significant increase in investment from domestic investors – 37% compared to an average of 19% over the last 5 years.
Equity continued to dominate real estate investments with a share of 81% of total investments. In 2023, non-core assets led the transaction volume at 53% of the total volume, thus indicating higher risk appetite by investors and a focus on potentially higher returns.
According to the report, the office sector will remain the preferred sector in 2024.
The office sector led by a wide margin with a 52% share in investment volume, followed by residential and warehouse at 16% and 13% respectively. The office sector saw a 61% increase in capital inflows – from $1.8 billion in 2022 to $3 billion in 2023 across 15 deals.
New areas to attract investment
New sectors like warehousing, data centres, student accommodation etc. will attract a large share of institutional investment in the coming years. Student housing as an asset class is attracting the attention of institutional investors in India. With the increasing number of students pursuing higher education and the increasing demand for quality housing, there is a significant opportunity for institutional investment in the region.
“Inflation and uncertainty about the direction of the global economy do not appear to be a deterrent for institutional investment in India in 2023. Investments continue to surpass the $5 billion mark, a trend that has continued since 2018. Several rate hikes in the US have curbed investment activities from the US and Canada. However, 2023 saw a significant contribution from the APAC region. “The outlook for the domestic economy currently remains bright and we expect this optimistic trend to continue in calendar year 2024,” said Latha Pillai, senior managing director and head of capital markets, JLL India.
“Decision-making may be delayed due to the upcoming elections, but India’s growth story will remain strong due to its inherent strengths and continued focus on economic growth,” Pillai said.
Platform Commitments
Additionally, 2023 saw the announcement of platform commitments of $2.8 billion of investments over the next few years. There was a significant decline (38%) in platform commitments compared to 2022, with platform deals seeing the largest increase – a 174% increase from 2021.
While investment has seen an increase, the global economic slowdown has had an impact on investor sentiment for long-term commitments. The largest platform commitment deal last year was between Ivanhoe Cambridge and Mapletree, which had an investment potential of over $1.8 billion in the technology-based offices sector in India.
REITs – Unlocking the potential in public markets.
The introduction of REITs in India has opened up additional avenues for real estate companies and investors to access public markets – offering liquidity and a regulated investment structure.
In 2023, India saw the listing of its first retail REIT – Nexus Select Trust REIT, and it received a strong response from anchor investors, with 45% of the IPO size absorbed by them.
The last two REITs – Brookfield REIT and Nexus Select Trust REIT – had an increase in participation from domestic institutional investors, reflecting the growing interest and confidence in the Indian REIT market. 2023 also witnessed Blackstone’s exit from Embassy Office Parks REIT by selling its 23.5% stake for $850 million at ₹316 per unit.
The top three buyers were Bain Capital, ICICI Prudential MF and Capital Group, gaining stake in the range of 7-9%. The strong response from institutional investors is indicative of the popularity of this real estate investment instrument and a move towards institutionalization of the real estate market.
Coming year – 2024
Overall, the government’s efforts to promote infrastructure development and implement structural reforms have supported the country’s growth path. Market experts believe that this growth will continue in the future and will result in a positive sentiment among investors regarding India’s growth story.
The private equity investment outlook in the Indian real estate sector has shown a positive trend in recent years and is expected to remain strong in the near future.
However, looking to 2024, it will be necessary to keep a close eye on capital flow trends. The slowdown in capital inflows in Q4 is indicative of the cautious approach that investors, especially foreigners, may adopt in 2024.
Prolonged uncertainty and monetary tightening in developed countries may increase risk aversion among investors and they will become more cautious about allocating capital to real estate. There may be a delay in decision making due to upcoming elections; However, the overall market outlook remains positive.
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