Investment in India’s real estate rose 8.7% in 2019 compared to 2018
Investment in India’s real estate rose 8.7% in 2019 compared to 2018, with increased foreign investor participation. Foreign funds accounted for about 78.0% of the total investments in 2019 –the highest share ever. During 2020, Colliers projects inflows of USD6.5 billion (INR46,170 crore) into the real estate sector. We expect investors to remain focused on acquiring commercial office assets over the next three years, backed by strong occupier demand and rental appreciation. Alongside Mumbai and Delhi-NCR, Bengaluru should continue to rank among the most attractive markets.
“We recommend investors to look at opportunistic assets including under-construction office assets, supported by strong demand dynamics in information technology (IT)-led markets such as Bengaluru, Hyderabad and Pune, offering ample opportunities to investors” said Sankey Prasad, Managing Director & Chairman at Colliers International India.
Commercial office assets accounted for 46.0% of the total inflows during 2019 totaling USD2.8 billion (INR19,900 crore), with the sector backed by strong demand dynamics and rental appreciation. The interest in office assets is backed by robust demand and rental appreciation. During 2020-2023, we project annual average gross absorption at 52.0 million sqfeet (4.8 million sqmeters) across the top seven cities, surpassing the gross absorption of the preceding five years by 12.0%. We expect a flurry of commercial investment activity in 2020 and 2021 as funds aggregate assets to list them as real estate investment trusts (REITs).
While the office sector is recording solid growth in investments, India’s residential real estate is experiencing prolonged slowdown in investment volume, accounting for only 9.0% of the total investments in 2019. We expect investments in the residential segment to remain soft during 2020, as liquidity concerns in non-banking financial companies (NBFCs) remain.
“Despite the ongoing economic slowdown, foreign funds are likely to gain a stronger foothold in Indian realty. Foreign private equity, including pension and sovereign funds, are looking at India for the long term, undeterred by the current slowdown. During 2019, foreign investors accounted for nearly 78% of total inflows – the highest ever proportion in investments till now. We expect investors to remain committed to commercial office assets over the next three years, with strong demand and outlook. We project that the commercial office sector will account for about 40.0% of the inflows in 2020”, said Megha Maan, Senior Associate Director, Research at Colliers International India.
Bengaluru emerged to the 2nd spot, overtaking Delhi-NCR in terms of garnering investments
India’s financial capital, Mumbai, continued to be at the forefront of investments, with a 25.0% of the total investment inflows in 2019. The city continues to be the most sought after investment destination in the country due to a wide range of asset classes, providing diversification to investors’ portfolio. For the first time ever, Bengaluru emerged to the 2nd spot, overtaking Delhi-NCR in terms of garnering investments, with inflows of USD655 million (INR4,650 crore) during 2019, according to Colliers International. We note that the strong appetite for office assets has catapulted Bengaluru’s position to the second spot in 2019. We believe that over the next two years, Bengaluru should continue to be amongst the top two most attractive markets for investors, as funds continue to remain concentrated in commercial office assets.
Over 2020-2021, we project that Mumbai will see a slower pace of investment, with few ready investible office assets available in the city. However, residential projects by top-tier developers in the city should see some interest from investors.
Hyderabad, Pune to see an IT-led upside
We are also witnessing increasing interest in assets in Pune, the city attracted significant investment of close to USD400 million (INR2,840 crore) during 2019, rising two-fold from 2018. According to Colliers, investors in India ranked Pune as their most preferred market among emerging locations.
While Hyderabad received almost USD200 million (INR1,420 crore) worth of investments in 2019, investors are mainly considering the city for office investment. There is 48 million sq ft of under-construction office space in Hyderabad, offering a range of opportunities to investors.