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Institutional Investment in real estate down to 5 year low

Institutional Investment in Indian real estate slumped 12 per cent than the previous fiscal year owing to a decrease in demand (as an economic fallout of Covid-19 Pandemic this FY). The investments for this FY is a 5 year low to just $4.48 billion. There is uncertainty over the return benefit from the investment made on real estate and the economy is also under stress because of the Covid-19 Situation and so the sales have declined.

Speaking on the matter, US-based property Consultant – Vestian said, “The fiscal year 2020 saw a total institutional investment of $4,480 million. This depicted a decline of 12 per cent when compared with the quantum of investment in the previous year fiscal year 2019”.

For this year Financial Year, the investment made to acquire commercial assets was 81 per cent while for the residential segment it was just 13 per cent or $565 million. While the commercial segment is expected to rebound after the next 2-3 quarters, the residential segment may take a longer time for it.

Nearly 90 per cent of the investment made in real estate this FY was in cities like Bengaluru, Mumbai and Pune. Mumbai accounted for the 42 per cent of investments made while Bengaluru accounted for 37 per cent investments made this FY.

US-based institutional investors have made about 67 per cent investment out of the total investment made in Indian Real Estate. Singapore, Hong Kong and Japan are also the major investors for the FY20. The Report further said, “With a number of risk factors arising in the real estate industry such as extended timelines of construction/project completions due to lack of labour availability, impact on sales and the long wait for approvals, PE and other institutional funds would be cautious in choosing the developers and projects for funding”.

It is forecasted that US investors will decrease making investments with deteriorating Covid-19 Situation. With the growing risk in Sector, funds are likely to cost 18-20 per cent up from 15-17 per cent, depending on project attributes. Vestian also said that the investors would target over 20 per cent return on their investments.

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