The Institutional Flow of Funds To Indian Real Estate By Harsha Vardhan Director, Kumari Builders and Developers
The Indian real estate industry has probably gone through a paradigm shift post the global financial crisis from 2009 to 2018. For the last decade, the industry has witnessed tremendous growth and became one of the highly investible sectors. The Indian real estate sector attracted USD 30 bn of investment from 2009 to 2018 of which 20 bn was invested during 2014 to 2018. This rise is due to a few reformatory(transformative) policies introduced by the Indian government. Such as, Real Estate Investment Trusts (2014), Housing for all Mission (2015), Real Estate Regulation and Development Act (2016), Benami Transactions (Prohibition) Amended act 2016, GST (2016) and highly notable change was relaxation in Foreign Direct investment (FDI) which made the industry more investible and trust worthy for an ROI. The FDI was on the upswing from 31% in 2009 to 70% in 2018.
The real estate market offers gigantic growth opportunities for domestic investment institutions and foreign investors. The growth has been expected to due to rising investor’s confidence, gradual recovery in the residential segment, and increasing demand for grad A commercial office space. The contemporary key trends of the real industry are the institutional investment which has been relatively low during 2008 but it has significantly increased in the last decade. According to the JLL report, in the year 2018 alone the industry has witnessed institutional investment close to $5.5 bn, which is the highest ever since 2009. The report also highlighted that the institutional investment has been doubled to $20 bn during 2014- 2018 compared to $9 bn received from 2008 to 2013.
The commercial office segment is emerging as the most favorable investment space for the institutional investors. Commercial office segment received around $8.2bn in 2014-2018 compared to $1.6 bn during 209-2013 which is five times higher. The key drivers for such growths are the emergence of Startups, Ecommerce companies, Co-working space concept and the industry is expected to grow continuously.
Although, the residential segment has not attracted the institutional investors heavily the segment is expected to receive a fair amount of investment in the coming years. The favorable segment would be affordable homes which are on huge demand and the government also advocates the concept with the endorsement.
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