Opportunities in the residential sector
Investors, both foreign and domestic are adopting a cautious approach to Indian real estate in the backdrop of the ongoing pandemic, according to Colliers International’s report ‘Future India: Captivating Strategic & Private Equity Investments’.
According to Colliers, through August 2020, overall private equity inflows into Indian real estate stood at Rs.65 billion (US$866 million), which is just 15% of the corresponding period in 2019.
However, the newer asset classes such as data centres and rental housing gained prominence among investors, said the report launched at the FICCI 14th Annual Summit on 17 Sept 2020.
During 2020 through August, the leading segments have been data centres, driven by demand for cloud infrastructure, as well as offices as they tend to offer steady rental income.
Robust domestic consumption also maintained investors’ confidence in industrial and logistics assets.
The growing demand for data centres provides an attractive opportunity for investors to capitalize on the interplay of real estate (location), infrastructure (power and fibre network) and technology (cloud services).
Per Colliers International, through August 2020, data centres attracted investment of Rs.29 billion (US$396 million) spread across two deals in Delhi and Mumbai.
The segment garnered the highest (46%) share in the total private equity investments in real estate in India, replacing the commercial office segment from its usual, top position.
“Commercial office to continue to drive investor demand for quality Grade-A assets and with successful REITs established depth across Institutional and Retail Investors,” said Piyush Gupta, Managing Director, Capital Markets & Investment Services at Colliers International India.
“There is likely to be an enhanced demand for Operating Assets which may extend to Warehousing/ Industrial, consumption and technolog-driven assets demand, such as Data Centers.
‘Further, the market situation is giving opportunities for investors to look at specific situations and residential is providing an excellent opportunity where inherent and pent up demand remains strong,” said Gupta.
Continued investor confidence in the office segment
The commercial office segment in India continues to attract significant interest from investors even in the current times of uncertainty around the remote working culture that is likely to continue until the end of 2020.
Per Colliers International, the segment attracted investment inflows of Rs.15 billion (US$207 million) during 2020 through August, accounting for a 24% share in the total investment pie.
Investors see upside in industrial and logistics assets
As per Colliers International, in 2020 through August, the segment attracted interest from multiple large institutional investors, with investment inflows of Rs.7.8 billion (US$102 million).
While investment over the coming year may be muted due to pandemic inspired slower decision-making by investors, it is expected that the segment will grow over the next two-three years as existing participants expand their portfolio and new players enter the market.
It is estimated that the segment will attract inflows from both foreign and domestic funds to the tune of Rs.297 billion (US$4.0 billion) during 2020-2023, translating into a CAGR of 5%.
In the backdrop of robust demand from e-commerce and other consumer-led occupiers, investors should focus on the segment in order to reap the benefits.
Green shoots in the residential segment
Due to the ongoing pandemic, the residential segment has experienced lower sales velocity, leading to near-stagnation. Certain developers are looking to offload bulk inventory to investors by offering steep discounts, owing to tough market conditions.
Investors should consider equity investment in completed units of affordable and mid-segment residential projects that may offer desirable returns beyond a holding-period of 3-4 years.
Investors should benefit from low entry prices and gradual recovery in the economy due to the increasing impetus of the government to revive demand in the residential sector.
Investors should consider partnering with top-tier developers and invest in greenfield residential projects to capitalize on inherent end-user demand.
Investors should consider opportunistic assets in hospitality and retail real estate segments that offer attractive valuations. Investors should also explore opportunities presented by over-leveraged developers who are keen to monetize their assets in order to reduce debt burden.
Colliers International (NASDAQ: CIGI) (TSX: CIGI) is a leading real estate professional services and investment management company. #investment #realestate #property #housing /fiinews.com
