Private equity (PE) investment in real estate is estimated to touch $7.2 billion this year, up 53% from 2015, as both residential and office assets continue to generate interest among domestic and foreign investors, according to a report by global real estate consultancy firm Cushman & Wakefield and the Global Real Estate Institute.
In the first nine months of 2016, private equity funds committed $4.2 billion, an increase of 20% from the same period last year, said the report titled ‘Revitalizing Indian Real Estate: A new era of growth and investment’. While domestic funds have invested around $2.9 billion, cumulative investments from foreign investors stood at around $1.15 billion during the period.
Residential properties continue to remain the preferred asset class, accounting for about 54% at $2.4 billion of total investments, the report released on Wednesday said.
However, it said record high investment is expected in the office sector in 2016 as there is growing interest in leased office assets due to the potential to list under real estate investment trusts (REITs).
During the nine-month period, commercial office properties fetched about $852 million investments. “With a few large deals for office portfolios in closure stages in the fourth quarter, 2016 is expected to record the highest annual investment made in this asset class,” it added.
In terms of location, Mumbai remained the top destination for investment both in the residential and commercial segments. The other two preferred destinations are the Delhi-national capital region (NCR) and Bengaluru, apart from Hyderabad and Pune.
As per the report, REIT-eligible commercial properties both in the office and retail could provide investment opportunities of up to $77 billion by 2020 across the top seven cities. At present, ready commercial office properties that could potentially be listed for REITs amount to around 277 million sq. ft, less than 44% of the total commercial office stock in the country.
Anshul Jain, managing director (India) at Cushman & Wakefield, attributed the growing interest among investors for office assets to the government’s efforts including streamlining of the taxation policy for REITs, easing regulations and investment cap in under-construction assets.
“These steps have infused optimism in investors who are confident not only about the implementation, but also the growth prospects of REITs in India,” he said.
The report also said net office absorption in 2017 is expected to surge by 9% to 32.4 million sq. ft, with Hyderabad and Pune emerging as the new growth markets within the next three years.
Office absorption is likely to close at 30 million sq. ft by the end of this year.
Bengaluru continued to be the top commercial real estate market with net absorption expected to touch around 9.8 million sq. ft by year-end.
“Year 2017 would herald a period of office sector wherein the pecking order changes. While Bengaluru will continue to be the premier market (32% share) in 2017, Hyderabad (18%) is expected to surpass Delhi-NCR for the first time ever to record the second highest absorption levels,” the report said.
On the residential front, total housing demand is estimated at 4.2 million units for the next five years across the top eight cities. However, only around 1 million units by private developers are expected to be delivered during the period, the report said.
While the mid-income group (Rs15-70 lakh) accounts for 63% of the housing units supply across eight cities in 2016-20 at 647,000 units, the demand is estimated to be around 1,457,000 units.
“Despite demand outstripping supply, there is a considerable proportion of unsold inventory in the mid-income group and high-income group categories, which are not absorbed as these properties are unable to demonstrate value for their buyers. Such units fall out of preference either on account of higher than expected prices or due to locations,” Jain said.