The Indian real estate sector boasts an impressive $41 billion in untapped domestic institutional capital, as detailed in a recent report by JLL titled “The Rise of Domestic Capital in Indian Real Estate.” The report sheds light on the remarkable growth of institutional investments in the sector, totaling approximately $57 billion since 2010, with an astounding $46 billion invested between 2015 and the first half of 2023, accounting for 81 percent of the total investments during this period.
One noteworthy observation made in the report is the evolving landscape of private equity (PE) investments. Historically, American investors have been prominent PE contributors in India, but concerns over an impending economic recession have led to a significant reduction in their share, plummeting from a peak of 52 percent in 2022 to 26 percent in H1 2023.
Over the past 12 years, the real estate sector has seen exits amounting to $12 billion across 267 deals. Impressively, 73 percent of these exits have been facilitated by domestic investors, in stark contrast to the 27 percent facilitated by foreign investors. The preferred exit routes have been buybacks (51 percent) and secondary sales (31 percent).
The report also attributes the substantial surge in institutional investments since 2015 to key policy changes and initiatives, including the introduction of guidelines for Real Estate Investment Trusts (2014), the Housing for All mission (2015), the Real Estate Regulation and Development Act (2016), the Benami Transactions (Prohibition) Amended Act (2016), the implementation of Goods and Services Tax (GST), and relaxation in foreign direct investment (FDI) norms.
Real estate investment trusts (REITs) have played a pivotal role in this growth. Domestic institutional investors, such as mutual funds and insurance companies, have shown a burgeoning interest in REITs. In the case of Nexus Select Trust REIT, 81 percent of anchor investors were domestic insurance companies, mutual funds, and pension schemes, indicating the growing importance of domestic institutions in real estate investments. These investors allocated Rs 1,440 crore, which constituted 45 percent of the total issue size of Rs 3,200 crore.
The report also highlights the attractiveness of real estate-focused Alternative Investment Funds (AIFs) to domestic institutions, ultra-high net worth individuals (UHNIs), and family offices. As of December 31, 2022, AIFs in the real estate sector had raised a total of $116.5 billion, reflecting a remarkable 91 percent compound annual growth rate (CAGR) since 2013. Approximately $16 billion has been infused into the real estate sector through AIFs, providing much-needed liquidity. Currently, 23 domestic real estate funds are in the process of raising capital, with an estimated value of around $3.6 billion.
The report underscores the significant potential for growth in the Indian real estate sector, as domestic institutional capital continues to play a pivotal role in shaping its future.
Also Read: Indian Real Estate Sees Remarkable 51% Rise in PE Investments, Hits Rs 24,680 Crore