India’s Real Estate Witnesses Sharp Decline in Investments

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First it was the slowing economic growth that saw investors maintaining a wait-and-watch mode in the Indian real estate sector. COVID-19 pandemic just added more salt to the injury. These two are being primarily cited as the reasons for the sharp decline in institutional investment into India’s real estate sector.  A report by real estate consultancy firm, JLL, states that the institutional investment has declined by as much as 58% in the January-March 2020 period; however, Colliers International India states that private equity real estate investment in India stood at Rs 1,640 crore in the first quarter of 2020, registering a drop of 62% quarter-on-quarter. ‘India Capital Markets Update – Real Estate Perspective Q1-2020’ the report by JLL brings out the fact that  total investments in FY 2019-20 fell to its lowest in four years, declining by 13% to $4,261 million over previous year levels of $4,780 million. Colliers International has lowered its projection of private equity inflows in real estate to about $3.5 billion in 2020 owing to slow decision-making by investors.

It is expected that going forward, investors will be in a wait-and-watch mode, and that caution and risk aversion will drive the dominant behaviour of institutional real estate investors over next few quarters.  According to Ramesh Nair, CEO and Country Head, JLL India, “The impact of COVID-19 virus has been unthinkable in its scope. Investors are expected to remain in a wait-and-watch mode, with caution and risk aversion is expected to drive the dominant behaviour of institutional real estate investors over 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.”

JLL’s report mentions that India's office space saw an increase in investments, rising from $1.8 billion in FY 2018-19 to $2.9 billion in FY 2019-20. It further mentions that home loans disbursals grew by $24.6 bn while net credit disbursal to real estate developers rose by $3.5 billion during FY 2019-20.

Research analysts believe that the changing market situation presents opportunities in the residential segment, income-generating core commercial office assets and opportunistic assets, especially in hospitality space. Colliers’ MD, Sankey Prasad is of the opinion that opportunity lies in logistics and data centres as well as core commercial office assets. “Distressed assets, especially in the hospitality space, are also attractive. The opportunistic asset trade transaction is expected to gain pace in the next 2-3 years with the current economic slowdown,” he said. Prasad’s realty research firm recommends investors to capitalize on the situation and focus on commercial office assets as India’s competitiveness remains.

 

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