Global investments in Indian real estate sector dip due to high inflation

Foreign investments in the Indian real estate sector, led by the US, experienced a decline in 2023 due to high inflation and geopolitical concerns. Notably, office spaces emerged as the most favoured investment asset.

Investments from American institutions in the Indian real estate market fell by 39 per cent in 2023 to $1.35 billion amid global uncertainties, according to JLL India. Despite this, foreign institutional investors continued to be the largest contributors in the Indian realty sector, growing by 14 per cent over the previous year and holding a 63 per cent share of total investments in 2023.

India’s real estate market has been an attractive destination for global investors, particularly from the US, since 2006. Over the past five years, investments from the US have consistently accounted for 40-45 per cent of the overall investment inflow.

 

Despite challenges such as the global economic slowdown and geopolitical tensions, India has managed to sustain its economic growth.

According to JLL India, the country’s real estate sector attracted more than $5.8 billion in institutional investments across 53 deals in 2023, marking a 14 per cent increase compared to the previous year.

“However, due to the current combination of inflationary pressures and geopolitical uncertainties in the US economy, investors are adopting a more cautious approach,” said Lata Pillai, senior managing director and head of capital markets at JLL India.

Some of the foreign investors in the Indian realty market include Blackstone, GIC, Brookfield India Real Estate Trust, Abu Dhabi Investment Authority, and Canada Pension Plan Investment Board.

Investment firm Blackstone stands out as one of the largest investors in the country, boasting assets under management of $50 billion as of December 2023. The company focuses on investments in commercial offices, warehousing, data centres, malls, and hotels.

In terms of sector preferences, office spaces continue to be the preferred choice for investments in calendar year 2023, capturing a 52 per cent share of the total investments.

“However, new-age sectors such as warehousing, data centres, and student housing are also gaining attention from investors and are expected to attract a substantial share of institutional investments in the coming years,” said Pillai.

Commercial real estate services provider Vestian agrees that the office sector has remained the most favoured, with investment deals and platform commitments totalling $4.6 billion. It continued to dominate, representing 52 per cent of the total investments announced in 2023, followed by residential at 32 per cent and logistics and industrial at 13 per cent.

Vestian emphasised that commercial assets have always been foreign investors’ “preferred choice” due to better returns, the prominence of organised players, and transparency.

“The average rental yield for commercial properties is 7-8 per cent in India, whereas for residential properties, it is in the range of 2-3 per cent. Moreover, a transparent business environment along with organised players boosts the confidence of investors,” said Shrinivas Rao, chief executive officer of Vestian.

Blackstone also holds the title of the largest landlord of office assets in India with 70 million square feet (after the exit of Embassy Real Estate Investment Trust). Additionally, Blackstone has partnered Embassy Group, K Raheja, Panchshil, Salarpuria, and Hiranandani, among others, in various projects.

Vestian anticipates that once the world economy stabilises, foreign investors will flock to the Indian real estate sector in search of better returns.

“The robust performance of the Indian economy and a healthy pipeline of planned infrastructure developments amid a global slowdown are expected to fuel growth,” Pillai said.

Furthermore, new investment avenues such as real estate investment trusts, infrastructure investment trusts, flexible spaces, and data centres are poised for substantial growth in the coming years, backed by inherent domestic demand, Pillai added.