The cumulative foreign institutional investment in the real estate sector of India has reduced from $3926 Million in 2022 to $2733 in 2023. The reason for this decline is the global Macroeconomic slowdown.
The landscape of institutional investments in real estate witnessed remarkable changes in 2023, reflecting a surge in confidence from domestic investors, which more than doubled to $1.5 billion. This staggering 120% increase in value marked a significant shift, demonstrating the resilience of the real estate market despite global uncertainties. According to a report by Vestian, a leading occupier-focused workplace solutions firm, the surge in institutional investments was primarily driven by domestic investors, showcasing a notable increase from 14% in 2022 to 35% in 2023.
The preferred investment avenue for these domestic investors was commercial assets, encompassing office spaces, retail spaces, co-working facilities, and hospitality projects. A substantial 42% of the investments were directed towards commercial assets, emphasizing the confidence in the stability and growth potential of this segment. Residential projects secured the second spot, attracting 39% of investments.
Rise in Domestic Institutional Investment in Real Estate
Despite a remarkable rise in domestic participation, the share of foreign investors witnessed a decline, contracting by 30% compared to the previous year due to global economic challenges. While foreign investors retained a dominant position with a 65% share in 2023, there was a notable decrease from the 79% share they held a year earlier. Commercial assets continued to be the focal point for foreign investors, claiming a substantial 72% of their investments, with the industrial and warehousing segment following at a distant 15%.
Shrinivas Rao, FRICS, CEO of Vestian, highlighted the robust nature of investments throughout the year, attributing it to the optimism exhibited by domestic investors in India’s growth narrative. He emphasized how the buoyancy in the real estate market was maintained despite uncertainties in demand across the sector.
The availability of funds through diverse investment tools such as Alternative Investment Funds (AIFs), Real Estate Investment Trusts (REITs), and Infrastructure Investment Trusts (InvITs) played a pivotal role in stimulating construction activities across various real estate sub-sectors. The Reserve Bank of India (RBI) data showcased a substantial increase of 38% in banks‘ lending to commercial real estate in November 2023 compared to the same period in the previous year. Additionally, banks’ outstanding for housing, including priority sector housing, witnessed a growth of 37% during the same period.
However, the overall institutional investments in real estate sector experienced a decline of 12% annually, reaching $4.3 billion in 2023. This decline, attributed to a cautious approach by foreign investors amid global macroeconomic uncertainties, marked a five-year low in investments. Despite this dip, the report by Vestian anticipates a resurgence in 2024. The expectations are based on the robust performance of the Indian economy and a healthy pipeline of planned infrastructure developments.
Shrinivas highlighted the growing demand for funds accompanying market expansion, suggesting that this heightened demand for capital could result in attractive returns on investments for investors. The anticipation of substantial returns might encourage more capital infusion into the real estate sector, fostering further growth and expansion and intensifying the need for high-capital investments.
The evolving dynamics of institutional investment in real estate reflect the changing landscape influenced by both domestic and foreign investors. The surge in domestic confidence, coupled with the anticipation of a rebound in 2024, underscores the resilience and enduring appeal of the Indian real estate market.