Institutional investments in real estate from domestic investors more than doubled to $1.5 billion in 2023, showcasing a 120% increase in terms of value over the previous year but the share of foreign investors shrunk over the previous year on account of global headwinds, a report by Vestian has said.
Commercial assets (office, retail, co-working, and hospitality projects) turned out to be the preferred investment option for domestic investors, with 42% concentration of investments, followed by 39% in residential projects, the report by Vestian, an occupier-focused workplace solutions firm specializing in commercial, residential, industrial, retail, and hospitality sectors.
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The share of domestic investors increased to 35% in 2023 from 14% in 2022 amid global headwinds. On the other hand, the share of foreign investors shrunk over the previous year by 30% on account of the macroeconomic slowdown. While foreign investors continued to dominate investments with 65% share in 2023, their share reduced from 79% a year earlier, the report said.
Nearly 72% of the foreign investments were concentrated in commercial assets, distantly followed by the industrial and warehousing segment with only 15% share, it said.
“Despite uncertainty in demand across the real estate sector, investments remained robust throughout the year. The optimism of domestic investors kept the real estate market buoyant, as they continued to show confidence in India’s growth story,” said Shrinivas Rao, FRICS, CEO, Vestian.
Significant rise in bank outstanding and easy availability of funds through new investment tools (AIFs, REITs, and InvITs) paved the way for heightened construction activities across the sub-sectors of real estate, the report said.
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As per RBI data, banks’ lending to commercial real estate increased by 38% in November 23 as compared to the same period in the previous year. On the other hand, banks’ outstanding for housing, including priority sector housing, increased by 37% during the same period.
However, institutional investments in the real estate sector declined by 12% annually and reached $4.3 bn in 2023. Although investments reached a five-year low, accentuating the cautious stance adopted by foreign investors amid global macroeconomic uncertainty, a resurgence is expected in 2024 on the back of robust performance of the Indian economy and a healthy pipeline of planned infrastructure developments, it said.
“The requirement for funds is also growing with market expansion. This elevated demand for capital may lead to high returns on investments for investors. In anticipation of high returns, investors may infuse capital into the sector, leading to further growth and expansion, which may further propel the requirement for high-capital investments,” said Shrinivas.