Institutional investments in Indian real estate declined by 27 percent from $1329 million in Q2 2021 to $966 million in Q2 2022. The expected growth in investments in 2022 was impacted due to global headwinds caused by the geopolitical situation, a report by JLL has said.
The year 2021 witnessed a revival in investments leading to the first half of 2021 registering investments of $2,630 million. However, the ebbing of the pandemic coincided with the start of the geopolitical crisis in 2022 and impacted stability and growth globally. Indian real estate registered sustained recovery despite the uncertain economic environment. However, the momentum in investments was slower in response to the uncertainty leading to $1,909 million during H1 2022, it said.
The institutional investments in the office segment of real estate rose to $652 million in April-June 2022 from $231 million in the corresponding period of the previous year. However, the institutional investments in the housing segment declined to $60 million in April-June from $78 million a year ago, while the inflow in retail real estate dropped to $51 million from $278 million. The institutional investment in the warehousing segment declined to $29 million in April-June 2022 from $742 million during the same period last year.
Office sector accounted for 67 percent investment share during Q2 2022, the report said.
The rebound in the office sector with a return-to-office and renewed leasing led to improved investment sentiments as reflected in $652 million capital flow during Q2 2022. There was a preference for core assets indicating an inclination for operational rent-yielding assets, the report said.
The inflow at entity levels and alternative assets (data centre) stood at $110 million and $64 million, respectively, in the second quarter of 2022 from nil in the year-ago period, the report said.
“We are also seeing Grade A developers attracting more and more entity-level investments. Entity-level investments by offshore funds with one of the leading developers accounted for an 11 percent share of deal volume in Q2. In light of current macroeconomic factors and limited availability of institutional grade core assets in the market for sale, we expect this trend to continue. Data centres and warehousing remain sectors to watch out for as we are expecting to see multiple land/portfolio acquisitions and strategic partnerships in the coming quarters,” said Lata Pillai, Head of Capital Market, India, JLL.
NCR-Delhi leads with the highest share of investments at 39 percent
NCR-Delhi accounted for the highest share due to two large deals. Another portfolio deal consisting of assets in NCR-Delhi and Chennai accounted for 34 percent share. The increasing trend of portfolio-level investments compared to individual assets has led to an aggregation of assets across cities. Institutional investors are also investing in the parent holding companies thereby achieving diversification across regions and assets, it said.
Real estate sector lending by banks during the first 5 months of 2022 equals 75 percent of 2021 levels
“The near standstill in the real estate segment during the pandemic was reflected in the sharp decline in net credit disbursal from $4 billion in 2019 to $1.5 billion in 2020. Construction finance dried up sharply as the project construction was stalled due to the pandemic conditions. However, the situation reversed in 2021 with a gradual return to normalcy,” said Samantak Das, chief economist and head of research and REIS, India, JLL.
“Banking sector credit to the real estate sector witnessed 3.5x growth during 2021 as compared to the pandemic period due to the low-interest rates regime and relaxed lending norms. Residential real estate witnessed robust recovery post the waning of the pandemic. This improved cash flow positions of developers due to brisk home sales. The office sector witnessed 26 mn sq ft of net absorption in 2021 revving up the growth cycle. The improved balance sheets helped developers to access credit from the banking sector at low lending rates. This has been reflected in 3.5x growth in net credit disbursals,” he added.
The first five months of 2022 continued the growth momentum with a net credit disbursal of $4.0 billion which is 75 percent of the total disbursals in 2021. Developers are expected to benefit from the lower lending rates over the next few months only, as the lending rates will increase in line with interest rates. The increase in policy rates and consequent rise in lending cost is likely to result in developers turning to institutional investors for equity/asset divestment, the report noted.
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