India’s institutional investments in realty maintain momentum in Q2

V Nagarajan

Indian real estate sector’s Q2 2022 deal volumes reflect a resilient response to the global changes, registering a marginal rise of 2% over the immediate quarter.

Investments in Q2 2022 have been lower by 27% on y-o-y basis as the visible impacts of global financial uncertainty became more pronounced during the quarter. This has led to lower deal volumes as compared to investments in Q2 2021. Q2 2022 maintains investment momentum at $966 million, said JLL in its capital market update for the quarter 2.

Despite the challenging environment, the real estate sector continued its growth journey with gross office leasing volume in Grade-A offices up by 36% q-o-q at 14.3 million sq feet in Q2 2022. The residential market recorded sales of over 53,000 units in Q2 2022 which is an increase of 171% Y-o-Y as compared to Q2 2021 across the top 7 cities. Retail and hospitality also showed robust momentum as businesses recovered to pre-pandemic levels. Data centres continued to attract investors aggressively scouting for strategic/financial partnerships.

The rebound in the office sector with a return-to-office and renewed leasing led to improved investment sentiments as reflected in $652 million capital flows during Q2 2022. There was a preference for core office assets indicating a preference for operational rent-yielding assets.

Institutional investments in Indian real estate touched $1,909 million in H1 2022, which was 73% of same period last year. The expected growth in investments in 2022 was impacted due to global headwinds caused by the geopolitical situation. The year 2021 witnessed a revival in investments leading to the first half of 2021 registering investments of $2,630 million. However, the ebbing of the pandemic coincided with the start of the geopolitical crisis in 2022 and impacted the stability and growth globally. Indian real estate registered sustained recovery despite the uncertain economic environment. However, the momentum in investments was slower in response to the uncertainty leading to $1,909 million during H1 2022.

Real estate sector lending by banks during the first 5 months of 2022 equals 75% of 2021 levels. The near standstill in the real estate segment during the pandemic was reflected in the sharp decline in net credit disbursal from $4 billion in 2019 to $1.5 billion in 2020. Construction finance dried up sharply as the project construction was stalled due to the pandemic conditions.

However, the situation reversed in 2021 with the gradual return to normalcy.

Banking sector credit to the real estate sector witnessed 3.5x growth during 2021 as compared to the pandemic period due to the low-interest rates regime and relaxed lending norms.

Residential real estate witnessed robust recovery post the waning of the pandemic. This improved cash flow positions of developers due to brisk home sales.

The office sector witnessed 26 million sq ft of net absorption in 2021 revving up the growth cycle. The improved balance sheets helped developers to access credit from the banking sector at low lending rates.

This has been reflected in 3.5x growth in net credit disbursals. The first five months of 2022 continued the growth momentum with a net credit disbursal of $4.0 billion which is 75% of the total disbursals in 2021.

Global capital markets are bracing new uncertainty created by the geopolitical situation which has panned out unintended outcomes.  Indian economy was also impacted by the global headwinds. However, the inherent strength of the economy has helped to maintain the growth momentum.

My sister and I jointly bought a flat and it was registered in my father’s name in 2018.  With the demise of my father, we have recently sold the flat.  What are the tax implications as we have shared the sale amount equally between us? Umesh, Sharjah
In your case, it will be considered as long-term capital gain as it was held for more than 24 months. The tax rate applicable would be 20% after indexation benefit.  As per the rules, you can invest in another residential property within two years or construct within three years from the date of transfer.  Alternatively, you can invest the capital gains in bonds of NHAI and REC within six months from the date of transfer of property with a maximum limit of Rs 5 million for each one of you.

I have inherited ancestral property in Pune. Can I gift it to my relative who is in India?  Please clarify.  Sharan Gouda, Dubai.
If it is ancestral property, heirs get the right by birth, depending on the religion they belong to in India.  The property can be passed on by reorganisation, by way of family settlement or a division in case of a HUF (Hindu Undivided Family).  If you want to gift your share from ancestral property, you can do it without any restrictions as it is like your self-earned property.