India has received a cumulative foreign investment worth $26.6 billion between 2017 and 2022 in the real-estate sector -- a three-fold rise from the previous six-year period, according to a report by real-estate consultant Colliers on May 12.
Foreign institutional investments accounted for 81 percent of the total investments during the period.
The report, ‘Colliers India- High on Investors Agenda’, said that the office sector saw the highest investments during 2017-22, accounting for about 45 percent of the total foreign inflows.
"Foreign investments in India have been on the rise over the last few years as the industry underwent an overhaul, with major structural and policy reforms inducing transparency and ease of business operations," the report said.
The country's investor-friendly foreign direct investment (FDI) policies, increased transparency in deal structures, and higher investment limits through the direct route have attracted global investors to India's real estate sector, it said.
Office sector sees highest investment
Institutional investments in real estate continue to remain upbeat in Q12023 as well, rising by 37 percent year on year (YoY) at $1.7 billion, led by the office sector.
“The strong economic and business fundamentals are enhancing institutional investors’ sentiments, forging strategic partnerships to expand their portfolios. The office sector saw the highest investments during 2017-22, accounting for about 45 percent of the total foreign inflows. While investors remain buoyant on office assets, their interest in alternative assets is surging,” Sankey Prasad, Chairman & Managing Director, Colliers India, said.
At the Asia-Pacific level, India has become a preferred investment destination as Indian cities offer higher yields, compared to other cities in the region at relatively lower pricing points, the report said.
The APAC market includes East Asia, South Asia, Southeast Asia, and Oceania, along with 20 countries, including China, India, and Indonesia.
"Major Indian cities like Bengaluru and Mumbai occupy the second and third positions, respectively, in terms of commercial yields across the APAC region. While Bengaluru leads office yields in the region, Mumbai leads in industrial assets yield," the report added.
With an expected reversal in the interest cycle over the next few quarters, the yield spread between bonds and real estate is likely to widen, making real estate an attractive proposition for investors.
Future outlook
The report added that the investments will reflect several opportunities for investors to recalibrate their strategy towards growth sectors.
At the same time, investors are recalibrating their portfolio strategy to include new-age growth sectors to diversify and fetch higher overall returns.
"Major investments are already being directed towards alternative assets such as data centres, life sciences, etc. The industrial sector is witnessing consistent growth owing to increased opportunities in manufacturing, favourable government policies and growth in E-commerce, leading to a significant amount of investible assets in the region," the report added.