Institutional Investments From Domestic Investors in Realty Sector Jump 120% in 2023 to $1.5 Billion: Report

Institutional investments in the real estate sector from domestic investors more than doubled to $1.5 billion in 2023, according to a report by Vestian. It added that the inflow of funds from domestic investors stood at $1,511 million ($1.5 billion) last year, registering a remarkable growth of 120 per cent from $687 million in the 2022 calendar year.

The share of domestic investors increased to 35 per cent in 2023 from 14 per cent in 2022 amid global headwinds, according to the report.

“On the other hand, the share of foreign investors shrunk over the previous year on account of the macroeconomic slowdown. While foreign investors continued to dominate investments with 65 per cent share in 2023, their share reduced from 79 per cent a year earlier. Nearly 72 per cent of the foreign investments were concentrated in commercial assets, distantly followed by the industrial & warehousing segment with only 15 per cent share,” Vestian said in the report.

Commercial assets (office, retail, co-working, and hospitality projects) turned out to be the preferred investment option for domestic investors, with 42 per cent concentration of investments, followed by 39 per cent in residential projects, it said.

Shrinivas Rao, FRICS, CEO, Vestian, said, “Despite uncertainty in demand across the real estate sector, investments remained robust throughout the year. The optimism of domestic investors kept the real estate market buoyant, as they continued to show confidence in India’s growth story.”

Significant rise in bank outstanding and easy availability of funds through new investment tools (AIFs, REITs, and InvITs) paved the way for heightened construction activities across the sub-sectors of real estate. As per RBI data, banks’ lending to commercial real estate increased by 38 per cent in November 2023 as compared to the same period in the previous year. On the other hand, banks’ outstanding for housing, including priority sector housing, increased by 37 per cent during the same period, the report said.

“However, institutional investments in the real estate sector declined by 12% annually and reached USD 4.3 Bn in 2023. Although investments reached a five-year low, accentuating the cautious stance adopted by foreign investors amid global macroeconomic uncertainty, a resurgence is expected in 2024 on the back of robust performance of the Indian economy and a healthy pipeline of planned infrastructure developments,” it said.

The report added that stabilising world economy, robust economic growth in India, huge domestic consumer base, growing emphasis on work-from-office policies, and favourable government policies such as National Logistics Policy and Make in India initiatives are likely to attract foreign and domestic investors to actively participate in India’s growth story.

Shrini further added, “The Indian real estate sector is rapidly expanding with the emergence of new asset classes. The requirement for funds is also growing with market expansion. This elevated demand for capital may lead to high returns on investments for investors. In anticipation of high returns, investors may infuse capital into the sector, leading to further growth and expansion, which may further propel the requirement for high-capital investments.”