The real estate sector in India attracted over $5.8 bn institutional investments across 53 deals in 2023, a 14% percent increase compared to 2022. However, looking ahead to 2024, it may be necessary to closely monitor the trends in capital flows as prolonged uncertainty and monetary tightening in developed countries may lead to an increased risk aversion among investors, and they would become more cautious about allocating capital into real estate in India, a report by JLL has said.
In 2023, the largest contributors were foreign institutional investors with 63% share of the total investments. The share of institutional inflows from Americas, the conventionally highest contributor into Indian real estate, witnessed a significant dip of 23 per cent from 43 per cent in 2022, the report said.
However, the market witnessed a significant increase in investments from domestic domiciled investors – 37% compared to an average of 19% in the previous 5 years, said the report titled ‘Investing in Tomorrow: The Real Estate Journey of 2023.’
Overall, the Indian government’s efforts to boost infrastructure development and implement structural reforms have supported the country’s growth trajectory. Market experts anticipate this growth continuing in the future and result in positive sentiments amongst investors in the India growth story, the report said.
In 2023, equity continued to dominate investments in real estate at 81% share of the total investments. In 2023, non-core assets led transaction volumes at 53% of the overall volumes, thus indicating a higher risk appetite and a focus on potentially higher returns by investors, the report said.
The office sector continued to lead by a huge margin, at 52% share in the investment pie, followed by residential and warehousing at 16% and 13% respectively. Capital flow in the office sector witnessed an increase by 61% – from $1.8 bn 2022 to $3 bn across 15 deals in 2023.
Office sector to dominate in 2024
According to the report, the office sector will continue to be the favoured sector in 2024.
However, newer sectors like warehousing, data centres, student housing etc. will attract a major share of institutional investments in the years to come.
Student housing as an asset class has been gaining attention from institutional investors in India. With the growing number of students pursuing higher education and the increasing demand for quality accommodations, there is a significant opportunity for institutional investment in this sector, it said.
“Inflation and uncertainty about the direction of the global economy did not seem to be a deterrent for institutional investments in India in 2023. Investments continued to cross the 5 bn mark, a trend that has continued since 2018. Multiple rate hikes in the Americas have curbed investment activities from the US and Canada. However, 2023 saw a significant contribution from the APAC region,” said Lata Pillai, Senior Managing Director & Head of Capital Markets, JLL India.