Mumbai: Fund inflows from institutional investors reached its peak of Rs 11,212 crore — highest third quarter performance in the past 11 years — indicating the continued momentum in private equity investments in the Indian real estate sector.
The investment volume increased 9 per cent from a year ago in the first three quarters of 2018 and stood at $5.6 billion (Rs 37,815 crore), signifying heightened investor confidence, showed data from Cushman & Wakefield.
The commercial office asset class accounted for nearly two-thirds of the investment volume during the quarter at Rs 7,140 crore. This is a marker for the continued strong institutional interest in the commercial sector for core and core-plus assets as well as opportunistic investments in brownfield and greenfield projects.
“As office space supply and demand continues to experience a robust increase, coupled with the emergence of co-working spaces in a phenomenal way, the investor confidence in the sector will continue to remain intact. While residential showed y-oy growth in 2018, we shall keep a close eye on the developing NBFC situation that has the potential to tighten liquidity flows to this asset class,” said Anshul Jain, country head & managing director, Cushman & Wakefield India.
Office sector investments during year-to-date 2018 have surpassed volumes by 1.3 times for the corresponding period of 2017. The large pipeline of transactions is expected to create a new benchmark and scale new peaks by the end of this year.
Jain believes that the surge in office investments was an expected trend, given the earlier forecast of several marquee office sector deals by private equity majors. Retail also continues to grow strong, with declining mall vacancy rates constituting heightened investor interest in this sector.
The residential sector has also seen higher inflows largely through domestic and NBFC route, but the current concerns on the asset quality and debt levels of NBFCs are likely to impact future disbursals amid the IL&FS default and concerns regarding developer credit defaults impacting NBFCs ability to raise from funds from banks.
“The recent liquidity crisis in NBFCs and HFCs will result in swift reduction of funds to real estate developers since banks and MFs have already reduced the flow of money for various reasons. This is expected to lead to a faster price correction in the highticket residential apartment segment as well as hasten the process of consolidation in the real estate sector going forward,” said managing director of Xander Finance, an NBFC-owned by the Xander Group.
Out of the key property markets, Hyderabad attracted the maximum attention from institutional investors with the city recording almost 60 per cent of the total investment inflows during the quarter. Mumbai was second with a 22 per cent share of the quarterly investment flows.
Some marquee transactions recorded in Hyderabad were Xander Investment Management’s commitment of Rs 2,550 crore in Phoenix Group for development and acquisition of an office project in Gachibowli, and forward purchase acquisition of office buildings in aVance Business Hub 2 by Ascendas India Trust.
The upcoming Real Estate Investment Trust (REIT) listing has also helped bolster investors’ interest as it will serve as a benchmark for monetisation and create liquidity for smaller investors to participate in the commercial office segment.
Realty PE Inflows at a Record
The upcoming quarter is also likely to see some key transactions with investors such as Blackstone, GIC, Mapletree Investments and the Canada Pension Plan Investment Board (CPPIB) eyeing lucrative office assets in Mumbai, Chennai and Hyderabad.
Retail has retained its strong showing in investment flows, but is still slightly lower in YTD 2018 compared with the corresponding period in 2017. However, Tier-II and III cities and opportunistic deals in larger cities are still being actively considered by institutional players.
According to the report, hospitality is finding favour again with refinancing as well as picking up of equity stakes in key hotel assets across the country. Increasing occupancy in both businesses as well tourist locations and attractive valuations for assets are attracting institutional players to this segment again. The focus remains on operational assets largely.