The change in investment climate also reflects in the asset allocation with investors parking more funds in office spaces.
Institutional investments in real estate fell sharply by 58% year-on-year at $712 million (around Rs 5,400 crore) during January-March 2020 as the sector got battered on two fronts, a report by JLL India has said. Investors adopted a wait-and-watch policy following the crisis at DHFL and Yes Bank, which got further extended on account of the novel coronavirus outbreak, it said.
The real estate industry has been facing one of its toughest times and attracting funds from institutional investors is one of them. Total investments in FY19-20 have been the lowest in four years, declining by 13% y-o-y to $4.26 billion (around Rs 32,600 crore), the report said.
JLL India country head & CEO Ramesh Nair said: “The impact of COVID-19 has been unthinkable in its scope. Investors are expected to remain in a wait-and-watch mode, with caution and risk aversion expected to drive the dominant behaviour of institutional real estate investors over the next few quarters. The year 2020 will be one of redemption as the world recovers from one of its most challenging periods in recent history.”
The change in investment climate also reflects in the asset allocation with investors parking more funds in office spaces. Investments in the office sector rose to $2.9 billion in FY19-20 from $1.8 billion in FY18-19.
The JLL report pointed out that an emerging trend in India’s office markets is a shift towards investments in value-add and opportunistic deals over core assets. “The analysis of core, value-add and opportunistic investments indicate that out of $4.4 billion invested in office space during 2018 and 2019, investors have been aggressively chasing returns as options of leased quality office spaces have reduced over the years,” it said.
Besides, investors are also entering into joint ventures, platform deals or forward sales with more complexities to manage risks in under-construction projects.
Sovereign wealth funds (SWFs) held $29 billion worth of assets under custody (AUC) in India as of December 2019 with real estate accounting for 22% of the AUC, or $6.6 billion.
The Union Budget had announced concessions for SWFs investing in infrastructure (which include affordable housing and logistics), but recent declines in crude prices may impact SWF surplus capital available for investments, the report said.