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Data centres emerged as the most popular alternate asset class post the Covid-19 pandemic.
Foreign institutional investments in the Indian real estate sector have witnessed a remarkable three-fold increase, totaling $26.6 billion between 2017 and 2022, according to a recent report by Colliers, a leading property consultancy. This surge can be attributed to significant structural and policy reforms that have enhanced transparency and ease of doing business in India. Combined with favorable demographic indicators, a robust digital talent pool, progressive government policies, infrastructure advancements, and competitive costs, India has emerged as a top choice for global enterprises, thereby fueling the demand for real estate in the country.
Rise in Foreign Investments and Diversification:
Foreign investors have shown significant interest in the Indian real estate sector, with the office segment accounting for approximately 45% of the total foreign inflows during the aforementioned period. However, the report highlights a growing interest in alternative assets as well. Data centers, in particular, experienced a remarkable surge in investments, with a 12-fold increase between 2020 and 2022 compared to the period from 2017 to 2019. The COVID-19 pandemic has accelerated the demand for data centers, leading to a four-fold growth in India’s data center space footprint from 2.7 million square feet (msf) in 2017 to 10.3 msf in 2022. The report estimates that this figure may reach 20 msf by 2025.
Foreign Investments and FDI Policies:
Foreign investments have played a significant role in India’s realty sector, accounting for a substantial 81% share of total real estate investments between 2017 and 2022. Among the countries contributing to this influx of funds, the United States emerged as the largest investor with a 42% share. India has witnessed a record-high total foreign direct investment (FDI) inflow of $84.8 billion during 2021-22. This impressive growth can be attributed to investor-friendly FDI policies, increased transparency in deal structures, and expanded investment limits.
Lucrative Commercial Yields in Indian Cities:
The Colliers report highlights the commercial yield potential of Indian cities, with Bengaluru and Mumbai securing the second and third positions, respectively, in terms of commercial yield across the Asia-Pacific (APAC) region. Bengaluru leads in office yields, while Mumbai takes the lead in industrial asset yields. These cities offer attractive returns on investment, making them highly desirable for both domestic and foreign investors.
Current Trends and Future Prospects:
Inflows during the first quarter of 2023 have continued to rise, showing a 37% year-on-year increase. The office segment remains the dominant area of investment, accounting for 55% of the total share, followed by the residential segment at 22%. Experts predict that India’s real estate market is set to experience a long-term structural upcycle, offering abundant opportunities across various asset classes and spectrums in the coming years.
The Indian real estate sector has witnessed a significant surge in foreign institutional investments, reaching $26.6 billion between 2017 and 2022. This growth can be attributed to favourable demographic indicators, digital advancements, investor-friendly policies, and increased transparency in deal structures. While the office segment continues to attract significant investments, alternative assets such as data centres are gaining traction.
Furthermore, cities like Bengaluru and Mumbai offer lucrative commercial yields, solidifying their position as prime investment destinations in the APAC region. With a positive outlook for the future, India’s real estate sector presents a multitude of opportunities across different asset classes and is poised for sustained growth in the years to come.
Read the full article here Foreign funds in to Indian realty jump 3x between 2017-22
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