Institutional investments in Indian real estate fell to 5-year low in 2023

As foreign investors turned cautious, their investments in the real estate sector fell 30 per cent in 2023 as compared to 2022

At $4.3 billion, the institutional investments in the Indian real estate sector fell 12 per cent in 2023 as compared to $4.9 billion in 2022. It is the lowest such investment in the sector since 2019, when it was $6.5 billion, according to data released by workplace solutions firm Vestian on Thursday.

It highlighted the cautious stance adopted by foreign investors amid global headwinds. The foreign investments fell 30 per cent in 2023 to $2.7 billion from $3.9 billion in 2022. Its share in the total institutional investment fell from 79 per cent to 65 per cent last year.

The foreign investors focussed more on commercial assets, with 72 per cent of their investment going into this segment. The industrial and warehousing sector followed it at a distant 15 per cent.

Domestic investors, however, continued to have faith in the sector, with total investments more than doubling to $1.5 billion from $687 million in 2022. The share of domestic investors increased to 35 per cent in 2023 from 14 per cent in 2022.

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Forty-two per cent of investments by domestic investors were towards commercial assets. It was followed by 39 per cent in residential projects.

"The optimism of domestic investors kept the real estate market buoyant, as they continued to show confidence in India’s growth story," said Shrinivas Rao, chief executive officer at Vestian.

The co-investment also saw a 95 per cent dip to $18 million from $360 million in 2022, mainly due to caution practised by foreign investors.

Earlier, a report by Colliers had shown that the institutional investments in the sector fell in the October-December quarter. These investments stood at $822.3 million during the quarter. down 37 per cent from $1,299.40 million in the year-ago period.

In 2024, Vestian expects the institutional investments to come back owing to the robust performance of the Indian economy and a healthy pipeline of planned infrastructure developments.

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"The Indian real estate sector is rapidly expanding with the emergence of new asset classes. The requirement for funds is also growing with market expansion. This elevated demand for capital may lead to high returns on investments for investors," Rao said.

"In anticipation of high returns, investors may infuse capital into the sector, leading to further growth and expansion, which may further propel the requirement for high-capital investments."