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October 24, 2017

A string of high profile deals reveals institutional investor appetite for Indian assets and sealed the country’s strong showing this quarter.

Standout investments in Q3 are Singapore sovereign wealth fund GIC’s US$1.4 billion joint venture with DLF Cyber City Developers for a portfolio of office and retail assets across India in August as well as Blackstone’s acquisition of the commercial properties of Carnival Group that includes Elante Mall, a Hyatt hotel and business park in July.

These come hot on the heels of Canadian Pension Plan Investment Board’s investment of US$500 million in a joint venture with India property developer Indospace in May. And last year, deals from Brookfield and Qatar Investment Authority helped push global capital flows to India to US$5.7 billion.

State support
“The Indian government in last two and half years in particular has laid out policies and incorporated various modifications to improve transparency in the Indian real estate along with making it easy for foreign money to enter into the Indian real estate market,” says Ashutosh Limaye, Head of Research for JLL in India, adding transparency helps investors better decipher market conditions. India’s Tier 1 cities now rank 36 on JLL’s Global Real Estate Transparency Index 2016 while its Tier 2 Cities stand at 39th place.

He points out that institutional investors are encouraged by other government initiatives such as demonetization last November and the Real Estate Regulation and Development Act implemented May 1, which have weeded out poor practices in the market.

As the Indian property market grows in maturity and depth thanks to these efforts, returns are getting more attractive. In particular, Mumbai, NCR and Bangalore are the top three cities for investors. These cities receive more than two-thirds of total investments.

“Sector-wise, capital is going into office – core and core plus – and residential assets under development,” Limaye says. “Now that the Goods and Service Tax have been implemented, warehousing is gaining popularity.”

India’s REIT leap
India’s impending launch of REITs also draws much interest from institutional and retail investors due to its low-risk nature and provision of regular dividends.

The Securities and Exchange Board of India has further eased regulations around REITs to allow them to have more sponsors and invest in assets which are under-construction.

“These help make REITs workable in India,” explains Limaye. “We are expecting at least two REITs to start in next six to 12 months. Performance of these initial REITs will play a big role in deciding proportion of retail participation.”

Private equity investments, on the other hand, are expected to remain steady looking ahead. “There might be a drop in intensity ahead but that would probably be due to the lack of availability of assets after three years of significant investment,” says Limaye.

Click here to read more about real estate investment in India

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