Institutional investments in Indian real estate declined by 27% during the first half of 2022 on a year-on-year basis impacted due to global headwinds caused by the geopolitical situation hitting stability and growth world over, showed a JLL India study.
The year 2021 had witnessed a revival in investments leading to the first half of 2021 registering investments of $2.63 billion. However, the ebbing of the pandemic coincided with the start of the geopolitical crisis in early 2022.
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 $1.91 billion during the first half of 2022.
During the quarter ended June too, institutional investments into Indian real estate declined 27% but continued its momentum sequentially with marginal rise to $966 million. The deal volumes during the quarter reflect a resilient response to these changes, registering a marginal rise of 2% over the immediate quarter.
“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. 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% share of deal volume in Q2,” said Lata Pillai, Head of Capital Market, India, JLL.
In light of current macroeconomic factors and limited availability of institutional grade core assets in the market for sale, she expects this trend to continue. Data centres and warehousing remain sectors to watch out for as these segments are expected to see multiple land and portfolio acquisitions and strategic partnerships in the coming quarters.
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% 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. NCR-Delhi and Chennai together account for 77% share of investments
Though the institutional investments in Indian real estate grew at a slower pace, the credit flows from the banking sector witnessed sharp growth during the last three and half years. Real estate sector lending by banks during the first 5 months of 2022 equals 75% 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.
The first five months of 2022 continued the growth momentum with a net credit disbursal of USD 4.0 billion which is 75% 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 Indian economy was also impacted by the global headwinds. However, the inherent strength of the economy has helped to maintain the growth momentum. Investors are expected to remain optimistic about the emerging real estate scenario and commit more capital across asset classes.
While office assets would be the preferred choice, the residential segment is expected to see more investor interest. Warehousing and Data Centres are expected to see competitive cap rates on the back of increased investor interest.
Another asset that is slowly piquing investor interest is Life sciences. With more and more developers looking at the prospect of developing life science assets and conducive macroeconomic factors in place, JLL India expects this sector to start seeing more activity soon.