Institutional Investments in Indian Real Estate Sector Witness Shift in Dynamics, Declining Inflow from Foreign Investors
A recent report Vestian, an occupier-focused workplace solutions firm, reveals an interesting development in the dynamics of institutional investments in the Indian real estate sector for Q3 2023. The report highlights a significant shift wherein domestic investors took the lead, accounting for 71% of total institutional investments, while the share of foreign investors declined from 55% in Q3 2022 to 27% in Q3 2023.
The overall institutional inflow during the July-September period witnessed a decrease of 57% compared to the previous quarter. This decline can be primarily attributed to a significant drop in foreign fund inflow.
However, Q3 2023 also saw an increase in institutional investments in residential assets, reaching $298.3 million. This marks a substantial 71% surge compared to the previous year, where institutional investments in residential assets amounted to $174.3 million.
Moreover, for the entire Indian real estate sector, the third quarter of 2023 witnessed an uptick in institutional investments, totaling $679.9 million. This represents an impressive 82% growth compared to the corresponding period in the previous year when the inflow stood at $374.3 million.
To further understand the changing landscape of institutional investments, a table provided Vestian showcases the quarterly changes in investments over the past year. It reveals that Q3 2023 experienced a decrease of 57% compared to the previous quarter, but an 84% increase compared to the same period a year ago.
According to Shrinivas Rao, CEO of Vestian, the slowdown in institutional investments during the September quarter can be attributed to limited interest from foreign investors amid a challenging global macroeconomic landscape. However, Rao anticipates that large conglomerates calling their employees back to the office may inflate the demand for office spaces across the country.
In terms of asset classes, the third quarter of 2023 witnessed some interesting shifts. Institutional investments in the residential sector, while remaining the leading choice, saw its share decline to 44% in Q3 2023 from 47% a year earlier. On the other hand, the share of commercial assets, including office spaces, co-working facilities, retail properties, and hotels, decreased to 24% in Q3 2023 from 40% in Q3 2022.
Despite this decline, office assets still attracted $164.1 million in institutional investments during the July-September period, indicating an increase from the $150 million recorded in the same period the previous year.
In contrast, the industrial and warehousing sector experienced a remarkable uptick, surging to 28% in Q3 2023 from a negligible presence in Q3 2022. Vestian attributes this growth to the Government’s ‘Make in India’ campaign and the rising popularity of e-commerce, which have fueled a heightened demand for industrial spaces and warehouses across the country, attracting significant interest from large investors.
The findings from Vestian’s report shed light on the changing landscape of institutional investments in the Indian real estate sector, with domestic investors taking the lead and various asset classes experiencing shifts in their appeal. Despite the overall decrease in institutional inflow, the sector continues to attract significant investments, driven the evolving needs and demands of the market.