The decade of capital flows in Indian real estateDecember 17, 2018 / By
Transformative reforms post the Global Financial Crisis (GFC) have played a key role in attracting institutional investments in the Indian real estate sector. This sector has attracted approximately USD 30 billion from 2009 to 2018. Of this, close to USD 20 billion came in the last 5 years which is almost 2.2 times the capital flow in the initial 5 years.
Various government reforms, viz. Securities and Exchange Board of India guidelines for Real Estate Investment Trusts (2014) (REIT), Housing for All Mission (2015), Real Estate Regulation and Development Act (2016) (RERA), Benami Transactions (Prohibition) Amended Act (2016) and relaxation in foreign direct investment norms, have made markets more transparent and organized.
While REITs is a progressive step towards creating an organized marketplace, the Housing for All Mission (2015) brought with it many other policies to achieve the objective of building 20 million affordable houses for the urban population by 2022. This has in turn opened a huge opportunity for investments in mass housing projects.
Of all the reforms, the most landmark one has been the introduction of RERA. The RERA has put in place a regulatory authority to bring the required transparency and accountability in the Indian real estate sector. Other reforms have made conditions for investment more conducive and easier. It would be interesting to delve deeper into investment trends during 2009-2018 as shown in the chart below.
Figure 1: Institutional Investment Trends in India (2009 – 2018)
Source: JLL Capital Market Research
Note: Institutional investments include Family Offices, Foreign Banks Proprietary Books,
Pension Funds, Private Equity, Real Estate Investor-cum-Developer,
Sovereign Wealth Funds and Foreign Corporate Groups.
Lending by banks, Non-banking Finance Companies (NBFCs) and
Housing Finance Companies (HFCs) is not included.
The decade post the GFC had two distinct phases – 2009 to 2013 and 2014 to 2018. The initial phase was of cautious recovery, which failed to gain momentum due to weak economic growth and lack of investor confidence. Following this phase, the introduction of transformative reforms post the change in Government (2014) led to a sharp rise in investment flows particularly from global investors.
The decade saw gradual rise in confidence as the share of offshore investments increased from 31% in 2009 to 70% in 2018. Sovereign wealth funds share of total investments increased from 5% during 2009-2013 to 15% during 2014-2018. Steps taken to make REIT closer to reality laid down the foundation for flow of global capital in office space which increased to USD 8.2 billion from USD 1.6 billion during the above phases. Global investors are also adopting dedicated platform funds with marque developers to invest in specific asset classes. The increasing risk appetite of investors is also reflected in the rising trend of investments in development assets as compared to income producing ones. The Indian real estate is thus getting ready for new wave of growth propelled by confident global investments.
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