Indian realty sector lured over $5.8b institutional investments

V Nagarajan

India’s resilience in the face of global economic headwinds has been evident, as the country has continued its growth path in 2023.

Despite challenges such as the global economic slowdown, geopolitical tensions, India has managed to sustain its economic growth.

The real estate sector attracted more than $5.8 billion institutional investments across 53 deals in 2023 – an increase of 14 per cent compared to 2022. This is an indication that investor confidence in the India growth story remains intact, despite uncertainty in global environment, according to JLL survey.

The average deal size also witnessed an increase by 8 per cent to $119 million compared to the previous year.

After witnessing robust investments in the first 3 quarters, Q4 of 2023 saw investment volumes significantly soften by 59 per cent compared to Q4 of 2022. This could be due to investors taking a cautious approach, triggered by a combination of geo-political challenges and anticipated monetary tightening in the developed countries.

Increased confidence driven by government initiatives, improved transparency and accountability in the real estate sector has led to the increasing share of investments by foreign institutional investors in the last few years.

Foreign institutional investors continued to be the largest contributors at 63 per cent share of the total investments. The current government policies and legislation, including tax incentives have boosted the demand for real estate and has contributed to the positive market outlook.

In 2023, the market witnessed a significant increase in investments from domestic domiciled investors – 37 per cent compared to an average of 19 per cent share in the previous 5 years.

The participation of domestic institutions as anchor investors in the recent REITs is an example of growing interest of domestic institutions in real estate. Equity route continues to dominate investments in real estate at 81 per cent share of the total investments.

The office sector led by a huge margin at 52 per cent share in the investment pie, followed by residential and warehousing at 16 per cent and 13  per cent respectively. Looking at the rapidly growing data consumption, digitisation of the economy, onset of 5G and data localisation trends, it is anticipated that the demand for investments in data centres will increase significantly in the next few years.

Investor’s preference for development partnerships with select few developers continues to drive consolidation in the market. The last few years have witnessed an increasing trend of portfolio-level investments compared to individual assets. This has led to an aggregation of assets across cities, with multi-cities accounting for 52 per cent share of the investment pie.

Last year witnessed $2.8 billion of platform commitment announced across 7 deals to be invested in the next few years. There was a significant dip (38 per cent) in platform commitments as compared to 2022, which had witnessed the highest growth of platform deals, a massive 174 per cent increase from 2021.

While investments have seen an increase, the global economic slowdown seem to have had an impact on investor sentiments for long term commitments.

Office sector continued to be the preferred sector at 55 per cent of the total commitments announced, followed by residential at 32 per cent and warehousing at 13 per cent.

I am planning to invest in rent income generating property in India. Is loan available for investing in such property? What are the tax benefits while investing in such categories? Arvind Kumar, Sharjah.

You can make investment either in residential or commercial property with the sole objective of receiving a regular flow of rental income. Loans are available while investing in rental income generating properties. Tax benefits are also available. From the rental income, you will get a 30 per cent standard deduction towards repairs, maintenance and collection charges of the property. This deduction is available irrespective of the fact whether you spend on the repairs or not. Moreover, complete deduction without any upper limit is available on the interest paid for the loan amount taken to purchase property which is given on rent.

I received a plot by way of gift from my relative. Can I dispose of the gifted property and repatriate sale proceeds to my foreign account? C K Naik, Dubai.

You can repatriate the immovable property received by way of gift from your relative in India. The sale proceeds of the immovable property should be credited to NRO account only. From the balance held in the NRO account, you may remit up to $1 million, per financial year, subject to the satisfaction of the authorised dealer and payment of applicable taxes. You may be required to file tax return for property sale income and taxes paid on it.