With investors, both foreign and domestic, are adopting a cautious approach to Indian real estate against the backdrop of the ongoing pandemic, the overall private equity inflows into the sector stood at Rs 65 billion through August 2020, which is just 15 percent of the corresponding period in 2019, a report by Colliers International has said.
The report by Colliers International titled Future India: Captivating Strategic and Private Equity Investments was launched on September 17 at the FICCI 14th Annual Summit.
Newer asset classes such as data centres and rental housing gained prominence among investors. During 2020 through August, the leading segments have been data centres, driven by demand for cloud infrastructure, as well as offices as they tend to offer steady rental income. Robust domestic consumption also maintained investors’ confidence in industrial and logistics assets.
The growing demand for data centres provides an attractive opportunity for investors to capitalise on the interplay of real estate (location), infrastructure (power and fibre network) and technology (cloud services).
According to Colliers International, through August 2020, data centres attracted investment of Rs 29 billion spread across two deals in Delhi and Mumbai. The segment garnered the highest (46 percent) share in the total private equity investments in real estate in India, replacing commercial office segment from its usual top position.
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“Commercial office continues to drive investor demand for quality Grade-A assets and with successful REITs established depth across institutional and retail investors. There is likely to be an enhanced demand for operating assets which may extend to warehousing/ industrial, consumption and technology-driven assets demand, such as data centers."Further, market situation is giving opportunities for investors to look at specific situations and residential is providing an excellent opportunity where inherent and
pent-up demand remains strong,” says Piyush Gupta, Managing Director, Capital Markets and Investment Services, at Colliers International India.
Continued investor confidence in office segment
The commercial office segment in India continues to attract significant interest from investors even in the current times of uncertainty around the remote working culture that is likely to continue until the end of 2020. The segment attracted investment inflows of Rs 5 billion during 2020 through August, accounting for a 24 percent share in the total investment pie.
Investors see upside in industrial and logistics assets
As per Colliers International, in 2020 through August, the segment attracted interest from multiple large institutional investors, with investment inflows of Rs 7.8 billion.
While investment over the coming year may be muted due to pandemic-inspired slower decision-making by investors, the segment is expected to grow over the next two-three years as existing participants expand their portfolio and new players enter the market.
The segment will attract inflows from both foreign and domestic funds to the tune of Rs 297 billion during 2020-2023, translating into a CAGR of 5 percent. Against the backdrop of robust demand from e-commerce and other consumer-led occupiers, investors are recommended to stay focussed on the segment to reap the benefits.
Green shoots in the residential segment
Due to the ongoing pandemic, the residential segment has experienced lower sales velocity, leading to near-stagnation. Certain developers are looking to offload bulk inventory to investors by offering steep discounts, owing to tough market conditions.
Investors may consider equity investment in completed units of affordable and mid-segment residential projects that may offer desirable returns beyond a holding-period of 3-4 years. Investors should benefit from low entry price and gradual recovery in the economy due to increasing impetus of the government to revive demand in the residential sector.
Investors should consider partnering with top-tier developers and invest in greenfield residential projects to capitalise on inherent end-user demand. Investors may consider opportunistic assets in hospitality and retail real estate segments that offer attractive valuations.
Investors may also explore opportunities presented by over-leveraged developers who are keen to monetise their assets in order to reduce debt burden.Business Insight | Home sales up 34% in Q3 2020, what is driving people to buy new houses amid the pandemic?