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Realty sees $5-billion investment in H1, says KPMG

Of the total inflows, $3 billion was from pension and sovereign wealth funds from Canada, Singapore, Netherlands and Qatar, which have primarily focused on leased commercial assets such as office, retail spaces and warehouses

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Notwithstanding the policy and regulatory challenges, the Indian real estate sector is witnessing a strong inflow of funds from private institutional investors, who have invested $5 billion since the beginning of this year.

Of the total inflows, $3 billion was from pension and sovereign wealth funds (SWFs) from Canada, Singapore, Netherlands and Qatar, which have primarily focused on leased commercial assets such as office, retail spaces and warehouses.

From $5.2 billion in 2013, the investment in the real estate sector has steadily increased to $7.1 billion last year, primarily driven by private institutional investors, according to KPMG, which released its report titled "Indian real estate - Decoding Institutional Investments,'' at a realty conference organised by National Real Estate Development Council on Thursday.

However, private equity (PE) firms and non-banking finance companies (NBFCs) continue to remain the largest investors in the under-construction projects. The annual investments by PEs, NBFCs, pension funds and SWFs have increased by nearly 560% from 2013 to 2016. Together, these investors account for almost 85% of the total investments, up from 32% in 2013.

The cumulative investment from 2013 to June 2017 stands at $20 billion, half of which has come in from 2016 onwards.

According to KPMG, the average deal size rise rose to $111 million in 2017, over double than sub-$50 million seen in the last few years. These investments reflect the improved confidence of domestic and foreign institutional investors.

Neeraj Bansal, partner and head, ASEAN Corridor, building, construction and real estate, KPMG in India, said, "The year 2017 is on its course to witness highest annual investment in Indian realty in past decade, with about $5 billion worth of deals already closed so far. The strength of the Indian economy and favorable demographics, coupled with the introduction of several growth-oriented reforms including Real Estate (Regulation and Development) Act, 2016; real estate investment trusts (Reits); goods and service tax; relaxation of foreign direct investment (FDI) norms are aiding the real estate sector to attract higher investments."

Of the total stock of about 672 million square feet across 14 key cities, nearly 30% has come up since 2013 and about one-third (33%) is absorbed since 2013. Annually, the average supply and absorption recorded were 45 million sq ft and 42 million sq ft, respectively, during 2013-16. Total absorption has outpaced new supply by a wide margin during 2015 and 2016.

The overall vacancy rates have reduced from 23% in 2013 to 19% at the end of June 2017. Owing to reducing vacancy levels, rentals across major economic corridors have been on an uptrend. Over the next three years, about 160-170 million sq ft of new space is expected to hit the market, taking office space supply to around 850 million sq ft.

Reit is emerging as a new avenue to raise funds by listing on rent-generating leased assets through Reit's platform. It is estimated that India has about 280 to 300 million sq ft of Reitable assets across key seven cities.

...& ANALYSIS

  • Reit is emerging as a new avenue to raise funds by listing on rent-generating leased assets
     
  • Cumulative investment from 2013 to June 2017 is at $20 billion, half of which came from 2016 onwards
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