Institutional investments worth $2,977 million was recorded in the first nine months of this year even as it increased by 17 percent year-on-year to $721 million in the July-September period, driven by better infusion of funds in housing, data centre and warehousing projects, according to JLL India.
The consultant said that institutional investment posted 17 percent year-on-year (YoY) growth during Q3 2021 (July-September) as investors continued to conduct deals despite the resurgence led uncertainty and disruptions, it said.
An analysis of investments during Q3 2021 reveals that it has been more balanced with the residential sector accounting for 29% of the total investments, followed by alternative sector - Data Centre (DC) accounting for 22% share. The mixed-use project of residential and commercial accounted for 19% of the total investments.
Mumbai, NCR-Delhi and Bengaluru attract 77% investments during Q3 2021
Mumbai with increased investments in the DC industry and capital flow in select residential projects 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.
Office space transactions have been muted due to a likely delay in the due diligence process and investors gauging the unfolding of work from the office scenario.
As compared to Q2 2021, volumes registered during the quarter were lower by 47% on a sequential basis. The recovery in investments during the first nine months of 2021 has been better than the pandemic year as total deals of $2,977 million were recorded as against $1,534 million during the previous period.
The muted growth in transactions is likely due to delays in the deal process influenced by travel restrictions. However, some funds with long term horizons have upped their risk appetite by investing in opportunistic asset portfolios. Listed REITs continued to raise low-cost debt and use the proceeds to acquire assets at attractive valuations.
Across India, investors are expected to take a cue from improvement in operational metrics of various asset classes as commercial office space witnessed 8% YoY growth in net absorption at 5.85 million sq. ft in Q3 2021, while residential sales grew by 65% on a sequential quarter basis registering sales of more than 32,000 units.
“The Reserve Bank of India (RBI) - India's central bank has kept the policy rates unchanged despite inflation concerns as sustained nurturing of economic growth remains a priority. It has maintained its GDP growth forecast at 9.5% for the financial year 2021-22, expecting strong economic growth in coming quarters,” said Lata Pillai, Managing Director and Head, Capital Markets, India, JLL.
The residential sector has seen a robust sales growth of 47% during the first nine months of 2021 over the same period of 2020. The third quarter proved that pandemic resurgence had a limited impact as sales grew by 65% on a sequential basis.
“The cautious unlocking of the economy, increased pace of vaccination and affordability synergy led to continuous growth in sales of residential units. Investment flows in the residential segment were impacted due to increased risk perception, shadow banking crisis and structural changes in the sector.
"The third quarter witnessed increased debt funding for projects that have received good home buyer response due to the developer track record. Investors are likely to infuse more capital in the residential segment towards projects in the last stages of completion,” said Samantak Das, Chief Economist and Head of Research & REIS (India), JLL
“The rating agency, Moody’s has upgraded the sovereign rating outlook to “Stable” from “Negative” indicating that downside risks are receding. This positive outlook is likely to get 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,” he added.
In alternative assets classes, - Data Centres have been attracting high interest as the industry is expected to double its capacity from 499MW as of H1 2021 to 1007 MW by end of 2023. The pandemic has accelerated the demand for third party DC industry. Investors and DC 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 industry.