Opportunistic bulk realty deals in India drive $5 billion investments in 2020

V Nagarajan

India’s strong economic recovery, an expectation of low-interest environment and improved asset income visibility may drive investments in 2021, according to a survey on capital markets by property consultancy firm JLL India.  

Institutional investment in Indian real estate staged a smart recovery during Q4, 2020 with $3.5 billion investments. As a result, the year 2020 closed with $5 billion investments, equivalent to 93 per cent of 2019 transactions ($ 5.4 billion), despite a sudden halt brought on by the pandemic.

A deeper analysis of institutional investments in 2020 indicates that the recovery has been narrow-based, as 27 deals were transacted in 2020 over 54 in 2019. The two large portfolio deals with an estimated value of $3.2 billion accounted for 65 per cent of the total investments in 2020. These investments by large global funds in times of uncertainty indicate the availability of quality assets at attractive valuations.

Large portfolio deals validate the investment potential of Indian real estate

The pandemic led to pull back in investments due to uncertainty over income stability and return to normalcy. However, large global funds took this opportunity to negotiate portfolio deals with developers who offered quality rent yielding assets in cities with a higher presence of global technology players as well as global in-house centres. The Blackstone Group took over 21 million sq. ft. of completed and under construction office, retail and hospitality assets from Prestige Estate Ltd. for around $1.2 billion.

Similarly, the Brookfield Group entered into an agreement with RMZ Developers to acquire around 12.5 million sq. ft. of office and co-working assets for around $2 billion. Office assets account for a major share of investments in both these transactions, indicating the strength of the asset class. India’s Grade-A office stock of 629 million sq. ft. as of Q4 2020, make the asset class ideal for investments.  

Office assets account for a major share of investments in 2020

India’s office sector has witnessed continuous growth over the last four years with the average annual net absorption crossing 30 million sq. ft., leading to steady rentals and capital appreciation till the onset of the pandemic. Global investors, looking for stable yields and regular returns, believe that technology sector driven office demand is expected to grow further and keep office absorption robust. To add to it, the success of two listed REITs has provided a new route for investments.  Bengaluru, with 150 million sq. ft. of Grade-A office stock, has the largest share (23 per cent) of India’s total office stock among its top seven cities.  

India’s real estate sector is expected to see the following trends:

(1) Investment outlook to remain optimistic over the year as expectations of continued low-interest rates, huge amounts of dry powder and chase for yield drive transaction volumes (2) Investments to gain momentum during the second half of 2021 as investors increase their exposures (3) Listing of forthcoming REITs to drive investment volumes in 2021 (4) Sustainable core office assets to be favoured by investors as they align with occupier demand and provide income stability (5) Logistics and data centres to attract new set of investors (6) Platform deals in the logistics sector likely to remain active as the segment benefitted from growing e-commerce demand as well as pandemic induced demand for cold storage facilities from pharma sector (7) Recovery in the residential segment and changes in FDI regulation could ignite investment appetite for mid and affordable housing projects.

I invested in a vacant plot coming under the Panchayat approval.  But the development authorities in Chennai say that the area may be acquired by the government.  On repeated requests, the land developer is not responding to our appeal.  Please advice.  Narendran, Sharjah.   

You will have to check whether ‘patta’ (a revenue record document) would be obtained from the appropriate authorities which will safeguard your ownership in future.  Any state government has a right to acquire land for public purpose if they desire to do so.  However, suitable compensation would be paid to you on guideline value of the property.  The government’s acquisition also depends on the specific purpose for which they may proceed like expansion of road or industrial estate or other public purposes.  So there is no need to worry now as the acquisition may not even if the government is not able to acquire large areas of land.