By Sachin Murdeshwar

Mumbai: FICCI and Vestian launched a report titled Real Estate Investment in India: A Brief Analysis that portrays the investment scenario in the real estate industry. The report was launched at the FICCI Conference on Real Estate Financing in Mumbai today and talks about the evolution of the real estate sector and the investment scenario thereof. The insights of the report show a major shift in the investment landscape of the real estate sector and its journey from a heavy dependence on banking credit for financing requirements to now, where nearly 80% of the institutional investment is accounted for by private equity investors.

 

The period from 2015-2018 observed the highest amount of traction in real estate investment in the country and this momentum continues in 2019 as well.  The years from 2015-2018 had investments worth USD25.7 billion being recorded.           2018 was the most popular year and had investments worth USD 7.2 billion, the highest in over a decade. The trend has further continued into 2019 too; and the year has already seen investments to the tune of USD 2.7 billion being made till the month of June.

 

The investment climate has become progressively relaxed and conducive for institutional investments that has been helped by a host of reformatory measures such as the Real Estate (Regulation and Development) Act, the Benami Transactions (Prohibition) Amended Act, launch of Housing for All Mission, and easing of FDI rules, leading to increasing adoption of best practices and transparency

 

Dr. Shrinivas Rao, CEO – APAC, Vestian says, ‘Real estate is one of the most fundamental and influential sectors impacting the overall growth of a country’s economy. A robust and well catered real estate sector assists in strengthening a host of other ancillary sectors and is significant for a growth economy such as ours. This report, we believe,  would not only go a long way in addressing regulatory challenges but also help reflect on  directional  way ahead for the sector’.

 

He further adds, ‘one of the major trends observed in the last decade has been the rise in institutional investment in real estate, particularly PE investment that has been a key factor in keeping the market confident about its revival. This investment interest from the institutional segment is bound to increase further, given the growth in a number of offshoots, such as – co-working spaces, co- living in the rental housing space, Affordable housing and warehousing & logistics.

 

Mr. Sanjay Dutt, Chairman, FICCI Real Estate Committee & MD and CEO, Tata Realty and Infrastructure Ltd, says, ‘The Indian Real Estate sector is in a state of nirvana with revolutionary reforms playing charm to attract investments and restore confidence in the sector’.  Encouraged by the potential of the real estate sector which is clearly indicated in the report, he further says, ‘2019 has started on a positive note with approximately USD 2.7 billion of real estate investments recorded in the first half of the year in various asset classes across the country. Improvement in infrastructure, roads, and metros coupled with the increased speed of technology implementation (eg. 5G) will be impactful game changers for the sector and will improve the investor interest in the sector. The launch of India’s first Real Estate Investment Trust (REIT) is another positive move for the sector further building confidence amongst global real estate investors to invest in India’.

 

 

Commercial Segment: A Winner

 

Commercial segment has emerged as the most preferred segment attracting investor interest and has accounted for the bulk of the real estate investment in the country since 2016. Commercial assets received the highest quantum of real estate investments during the period 2015-2019, to the tune of 50% of the total investment value. The most notable deal transacted in commercial segment was Blackstone picking up a 50% stake in Indiabulls’ flagship office properties in central Mumbai—One Indiabulls Centre and Indiabulls Finance Centre—for USD 730 million.  In sharp contrast, the residential segment has been on a declining trend, attributed primarily to the slowdown in the residential market owing to several factors, particularly relating to the regulatory measures and issues such as liquidity crunch, delayed projects and reduced buyer interest.

 

 

Increased interest by Foreign Investors

 

Foreign funds have increasingly bought into the India growth story and have been allocating substantial investments into the Indian realty sector. This is also a further validation that the  reformatory measures undertaken by the government  is not only increasing confidence in investors, but also  making the sector attractive overall. The interest of foreign funds in Indian real estate increased significantly during the years between 2015 and 2019.  Investments which were recorded at mere USD 1.3 billion in 2015, later touched USD 3.3 billion in 2017. Among foreign investors, a number of Singapore-based PE firms such as GIC, Ascendas- Singbridge and Xander are remarkably active in India’s realty sector, particularly towards the south, accounting for majority of the PE investment during the period 2015-2019. Other firms that have shown strong interest in the sector have their base in countries such as USA, Canada, and Abu Dhabi amongst others.

 

Mumbai ruling the Roost

 

There has been a healthy competition between the southern and the western regions of India wanting to claim a greater share of the renewed interest from institutional investors. Among the cities attracting real estate investment, Mumbai-based companies garnered the most investments, in terms of both size and number. During 2015-2019. Mumbai attracted investments worth USD 10 billion, accounting for a share of 36% of the total investment. Bengaluru was next in line with USD 6 billion of investments accounting for 21% share, followed by Gurgaon with USD 3.6 billion of investments and accounting for nearly 13% share. In 2019, till June Mumbai has accounted for 52% of the total investment in the country.

 

 

Affordable Housing shouldering the Residential Segment

 

2018 witnessed a revival in the residential market, primarily buoyed by new launches and sales in the affordable housing sector. We believe that this would continue to drive market growth in 2019, that has been further helped by the transparency in the segment and regulatory push through various avenues such as allocation of infrastructure status, benefits under Prime Minister’s Awas Yojana, Credit Linked Saving Scheme and substantial GST rate cut on housing

 

 

The changing face of real estate in India: Emergence of new asset classes

 

Co-working segment has grown exponentially and has been the new trend which is helping commercial real estate market to explore a new era of shared workspaces. At present, there are more than 180 co-working operators in the top eight cities. Office markets in Bengaluru, NCR and Mumbai offer the best opportunities for this trend, followed by Hyderabad and Chennai. The co-working segment is expected to account for a larger share of the market in 2019, portending a major shift in workspace dynamics with technology, innovative space design and flexibility impacting the preferences of new age businesses.

 

 

Co- Living spaces that offer an inherent advantage of entailing a hassle free, convenient  plug and play model, is expected to attract more tenants into its fold with the  segment projected to grow manifold in the forthcoming period. Already over 40 co-living start-ups have come up around the country in the past 2-3 years and the segment has been attracting significant interest in venture capital funding too. Nestaway, has been reported to have raised USD 94.2 million while Colive, offering fully managed rental homes, has raised USD 9.2 million. In another big-ticket funding, student housing rental start-up Stanza Living raised USD 10 million in 2018.

 

Warehousing and Logistics segments are driving investor interest due to strong economic fundamentals, proactive government policies such as implementation of GST and ‘Make in India’ policy, and sustained growth in organized retail and e-commerce. Southern cities like Bengaluru, Chennai and Hyderabad have witnessed substantial interest from investors in recent years. Among major deals, Warburg Pincus invested USD 180 million in Embassy Group for a project in Bengaluru, while Proprium Capital Partners invested nearly USD 100 million in Musaddilal Projects in Hyderabad.