Institutional investments in real estate dip 28% to $2.3 bn in H1: Report

The commercial assets segment has remained the most preferred segment to attract investor interest in recent years.

Institutional investments in real estate dip 28% to $2.3 bn in H1: Report
Multi-city deals occupied the top rank in institutional investment, its share increasing to 36% in H1 2022 from 30% in H1 2021.

Institutional investment in Indian real estate during the first half of this year (H1 2022) was recorded at USD ($) 2.3 billion as opposed to nearly $3.2 billion of investment observed in H1 2021, owing to the uncertainty caused by global headwinds sapping enthusiasm among the investors, according to a report by Vestian.

As per the report, repeated waves of the COVID-19 pandemic, coupled with increasing inflation, created a greater impact on the Indian market, leading investments in H1 2022 to decline by 28% when compared to the amount in H1 2021 – indicating a cautious approach adopted by investors in the Indian real estate market.

Interestingly, despite the significantly reduced amount of investment in the sector, the average deal size in H1 2022 was recorded at $118 million, depicting an increase of 14% when compared to the average deal size in H1 2021.

A number of large-sized deals were inked during the period, thus accounting for the rise in investment volume.

Majority of the investment during H1 2022, to the tune of $1.9 billion, came from foreign funds (funds without an India-dedicated corpus). Accounting for a lion’s share of 84% in H1 2022, this signified the increased interest of foreign investors owing to ease of doing business and various other reformatory changes in the country in recent times. However, domestic investors’ share has reduced considerably to 16% in H1 2022, from 28% in H1 2021.

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The commercial assets segment has remained the most preferred segment to attract investor interest in recent years. While the segment continued to attract the maximum amount of real estate investment, its share had reduced to 49% in H1 2021. It regained trust among the investors with a whopping 62% share of the total investment in H1 2022.

Increased investment in commercial sector can largely be attributed to brisk return-to-office momentum, growing number of start-ups leading to a stronger workforce, and a fair pick-up in the retail sector in H1 2022.

Alternative sectors such as life sciences is gaining confidence among the investors with its share increasing to 9% in H1 20222 in contrast to negligible investment in H1 2021. This can be attributed to the growth observed in the pharma sector and the increasing contribution of India’s workforce in the life sciences sector.

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Unlike H1 2021 which had an evenly spread-out quantum amongst various asset classes, including a fair amount invested in the industrial and warehousing sector, investors in H1 2022 remained more focused towards commercial real estate segment, residential sector and the alternatives asset class.

The share of investments in the residential sector has remained almost similar in H1 2022 as in H1 2021, owing to a higher inclination seen towards home ownership among the buyers post COVID-19 pandemic across all the budget categories – affordable, mid and luxury.

Multi-City Deals

Multi-city deals occupied the top rank in institutional investment, its share increasing to 36% in H1 2022 from 30% in H1 2021 – primarily accounted for by investors in large-sized commercial segment deals, such as the ones inked by Brookfield and Canada Pension Plan Investment Board.

On individual cities basis, NCR accounted for the maximum amount of real estate investment in H2 2022, attracting 21% share of the total investment. While a major share of the investment was committed towards the commercial sector, several deals were inked in the residential segment as well.

On the other hand, Mumbai, the financial hub of the country, stood in the second place with a share of 16% in H1 2022 as against 33% in H1 2021.

Bengaluru, being the country’s foremost office market, remained in the third place. Not surprisingly, a majority of the investment committed was towards the commercial segment followed by the residential segment.

Institutional Investment in Q2

Institutional investment in the second quarter 2022 was recorded $1.3 billion, depicting a 9% decline when compared with the amount of investment in the year-ago period of Q2 2021, attributable primarily to the economy slowing down in the country and the global headwinds from geopolitical conditions creating an uncertain environment.

However, despite a dip in the investment quantum, the average deal size of investment during Q2 2022 strove to remain relatively steady at $116 million when compared with the average deal size of investment in the same quarter of last year, portending a marginal decline of 2.7%.

This can be attributed to several mid and large sized deals inked during Q2 2022, thus accounting for the respectable average deal size of investment volume showing resilient response to the economic slowdown.

As with the half yearly trend, majority of the investment during Q2 2022, to the tune of 86%, came from foreign funds, while domestic investors’ share was restrained to 14%.

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