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As per the Colliers report “Foreign investments in Indian real estate turn a corner,” released in association with FICCI, during 2017–21, the foreign capital flows in real estate jumped three times to USD24.0 bn compared to the preceding five-year period. Over the last five years, global investors have shown an increased inclination towards investment in Indian real estate buoyed by regulatory reforms introduced in 2016.
Sector-wise foreign investments during 2012-16 and 2017-21 (in USD bn) Foreign investors, who had previously refrained from investing in the Indian real estate market due to the lack of transparency, started investing in the country with greater optimism from 2017. The share of foreign investments in Indian real estate has grown to 82% during 2017-2021, compared to 37% in the preceding five-year period.
Piyush Gupta, Managing Director, Capital Markets and Investment Services, Colliers India, added, “We are witnessing a buoyancy in global capital inflows into India across asset classes, with office and industrial assets remaining the most preferred. The investors take a long-term view with significant exposure to development assets, reflecting confidence in taking construction risks with credible partners. The investors continue to invest in developers with proven expertise in their respective business areas to build and acquire long-term sustainable assets. With residential sales continuing to do well across markets in India and opportunities to grow for developers, more structured capital is likely to flow into the sector.”
Office sector dominant post-2016; industrial and logistics led in 2021
During 2017-21, the office sector holds the frontline of foreign investments with a 43% share of total foreign investments, followed by the mixed-use sector, accounting for 18% of total foreign investments. The investments in the industrial and logistics sectors stand at position three, surpassing the residential sector. In the aftermath of the NBFC crisis, foreign investors remained cautious about the residential sector in the wake of subdued residential sales. The share of residential assets in total foreign investments has reduced to 11% in 2017-2021, from 37% in the preceding five-year period.
“Demand for alternative assets, including life science labs, data centres, and flex spaces, has grown during the pandemic as investors seek new avenues for growth and returns. Data centres garnered a maximum share of 52% of foreign investments in alternatives in the last five years. The lack of income-producing data centre assets in key locations and the scope for future REIT listings will push investors to form new platforms for development opportunities. In the past five years, capital commitments equating to USD 13.5 billion have been made by global data centre operators, corporates, and investors for the development of data centres in India,” says Vimal Nadar, Senior Director, Research, Colliers India.
Office sector grows 3X to USD10.3 bn in 2017-2021
The office sector saw a significant uptick in foreign capital flows post regulatory reforms in 2016 like enhanced transparency, robust demand for Grade A office space, and exit avenues like REITs that bolstered investments. Foreign investments in the office sector have consistently reached USD 2 billion in each year since 2017 except in 2021 when the quantum of investments almost halved.
The industrial and logistics sectors emerge as the top gainers in 2021
Momentum in industrial and logistics assets in India has picked up only in the last five years, driven by robust demand from e-commerce and 3PL firms for modern warehousing facilities. In 2021, industrial and logistics assets emerged as the top choice for foreign institutional investors, garnering almost a third of foreign investments (USD1.1 bn), surpassing the office sector. The lack of ready Grade A industrial and logistics parks across tier I and II locations amid high demand scenarios have pushed investors to create platforms for the development of modern warehousing facilities in these locations.
Alternative assets are seeing strong investor interest
During 2017-21, alternative assets saw an inflow of about USD1 billion, with a majority of it coming during the pandemic years. Government policy for data localisation and infrastructure status recently received for data centres are likely to give a boost to the establishment of new data centres in the country.
Canada and the USA are dominant investors
The share of investments from the USA and Canada together has been more than 60% of foreign investment in each of the years since 2017. Despite the challenges posed by the pandemic, the funds from the USA and Canada continue to actively explore the industrial segment, apart from the office and mixed-use assets. Similarly, the majority of the investments from Asia are targeted towards the office, industrial, and logistics sectors.
