Indian real estate to fortify institutional investors’ confidence in 2022
Institutional investors, including global funds, private equity firms and domestic companies, are expected to continue investing in Indian real estate, with additional funds flowing into the sector in 2022.
These investments are likely to be driven by broad-based growth due to a low interest rate environment, sustained monetary stimulus, improved earnings transparency across all asset classes and an inclusive growth policy.
Fund managers see new funding avenues opening up against a backdrop of revitalized business confidence, fueled by a recovery in demand across all segments.
“We have invested around 3,000 billion rupees in real estate since March of this year and see this strong momentum continuing into 2022. Most of the external capital in 2020 and 2021 went into portfolio transactions and repair capital, but funds are now flowing into land transactions along with refinancing, ”said Vikas Chimakurthy, CEO, Kotak Realty Fund, part of Kotak Investment Advisors Limited (KIAL).
KIAL, India’s largest domestic alternative asset fund, raised $ 380 million or Rs 2,770 billion from global financial investors including Allianz Group earlier this year through its newest real estate fund. This fund is one of the largest dedicated real estate finance funds that has recently closed in India, particularly during the Covid-19 pandemic.
Led by large portfolio deals, institutional investments had managed to break the $ 5 billion mark in 2020 and reached $ 4 billion in 2021.
“Improved resilience to uncertainty, economic recovery and committed dry powder are expected to drive investment in 2022 at the same level as 2017-2020 with investments of $ 5 billion,” said Lata Pillai, Managing Director and Head, Capital Markets, JLL India.
According to her, the creation of asset portfolios for the listing of new REITs, increased competition for high-quality assets, geographic and asset diversification, a strong interest in logistics, data center assets in the “new normal” will be the numerous investment drivers over the course of the year Year 2022.
Residential real estate will also be a major beneficiary of these investments as experts predict the segment will hit quarterly sales before the pandemic in 2022 and, given the strong momentum, could hit quarterly sales before demonetization in the second half of 2022 as well.
“When we got out of the first COVID-related lockdown in the second quarter of last year, we saw a spike in home sales due to a mix of factors such as increased affordability, decades of low mortgage rates and the increased emotional value of home ownership during the pandemic,” said Sharad Mittal, CEO of Motilal Oswal Real Estate (MORE).
Mittal assumes that the fundamental factors combined with government initiatives will drive housing demand even further in the near future. In the future, the liquidity scenario will improve and the real estate sector will receive much-needed funding.
The Motilal Oswal Group’s private equity real estate arm has already invested over Rs.1,200 billion in projects in Mumbai, Bengaluru, Chennai, Hyderabad and Ahmedabad through its investment platform after the outbreak of the Covid-19 pandemic and is in the process of investing additional Rs 1,000 crore by the end of March.
Housing construction has seen a green wave of recovery and is expected to gain further momentum thanks to renewed buyer confidence, record low interest rates and offers from property developers that have been instrumental in helping the housing market recover.
The appetite of institutional investors for Indian real estate remains unbroken despite the resurgent uncertainty and the disruptions caused by the Covid19 pandemic. The long-term growth potential and attractive returns have ensured that investors continue to bring much-needed capital into the industry.
Across India, investors are expected to look to improving operating metrics for various asset classes such as office rentals and residential sales. The cautious economy, accelerated pace of vaccination and affordability synergies are expected to drive these investments further.