NEWS

Realty reforms boost FIIs investment in the sector

November 08, 2018

Credits : magicbricks.com

Mumbai: The combination of policy and regulation reforms in the real estate sector has increased the risk appetite of global institutional investors as they increasingly switch from income producing to development of assets.

The trend clearly indicates their preparedness to participate and assume more risk in Indian real estate given the improvement in transparency and their confidence in the Indian real estate space. Investments in development assets have increased over 7 times to $960 million in the current year till date from $135 million in entire 2017, showed data from JLL India.

The last decade or so has been marked by risk appetite of foreign and domestic investors changing across different asset classes in India's realty sector. Pivotal events such as the Lehman Brothers collapse and the subsequent global financial meltdown were major triggers behind the increased risk perception.

"Transformative regulatory reforms such as GST, demonetisation and RERA along with focus on affordable housing, easing of FDI norms in construction sector, and infrastructure status to affordable housing and warehousing segments have witnessed investors’ confidence returning in the domestic realty sector," said Ramesh Nair, CEO & country head, JLL India.

In percentage terms, investments in development assets as share of total funds inflow across various real estate asset classes excluding residential segment has seen an 8-fold fold jump to 33% in 2018 year-to-date compared with a mere 4% in 2017.

Development assets include realty projects that are either in under-construction phase or undergoing restructuring, as well as greenfield.

Within development assets, office, retail and warehousing have attracted institutional investments. Favourable macroeconomic indicators and improved transparency owing to regulatory reforms in real estate have played a crucial role in catching institutional investors' fancy for development assets.

This confidence reflects in the total value of institutional investments in the real estate sector since 2014. Investments have nearly trebled to $6.4 billion in 2017 from $2.2 billion in 2014. Maintaining that momentum, the first half of 2018 has already witnessed robust numbers with $3.6 billion worth of investments.

"Institutional investors are taking a long-term view on the markets for commercial assets. The platform arrangements offer rights to the investor to acquire the asset once fully developed. The investor continues to rely on the local partner's execution capabilities," said Bhairav Dalal, Real Estate Tax Leader, PwC India. "The preference for such platform arrangements is increasing as investors are keen to create value by developing the next round of grade A assets rather than chasing the existing ones."

Office markets have been the preferred destination for institutional investors for some time. Foreign funds were first to spot the potential in this space and bought large office assets with attractive yields in view of future public exit via Real Estate Investment Trusts (REIT).

For instance, Blackstone along with its joint ventures with Embassy Group, Salarpuria Sattva, Panchshil Realty and K Raheja Corp owns 78 million sqft, while Brookfield has built an office space portfolio of 24 million sqft. These investors have acquired 100-120 million sqft of quality stock which has led to limited availability of ready grade A office assets for investments. This coupled with increased transparency of the real estate sector makes a case for higher investments in development assets in the coming years.

Well established malls have been an attractive destination for investors looking to invest in the Indian retail segment. For instance, GIC bought 50% stake in Viviana Mall, Thane, while Blackstone acquired stake in Forum Group’s Esplanade Mall in Bhubaneswar. However, limited availability of well operated malls has turned the focus of investors towards development assets.

As a result, investment platform funds and joint ventures have turned preferred model of investments in the retail segment. With the implementation of Goods & Services Tax (GST) and initiatives such as Make In India have attracted investors' attention towards warehousing and logistics too.

According to experts, developers with long-term vision, focus on corporate governance and ability to forge strategic partnerships will benefit from increasing interest in development assets. Rising investor confidence, solid appetite of global investors and inclination of marquee developers for joint venture is likely to usher in more development asset investments moving ahead.

To Know About Thane Real Estate Development Contact Us at 022 2580 6868

Source:magicbricks.com