2017 saw a paradigm shift in how India invests its money. While still reeling under the impact of demonetization, the year saw an introduction of major policy changes as well as the boom of newer and riskier investment avenues, including Bitcoin and other crypto- currencies.
Coming to real estate, 2017 was a roller coaster ride, with policy changes leading to speculations regarding the investment scenario. However, with global real estate investment activity broadly tracking last year's pace, we saw India's investment market attract over USD 5.1 Bn investment flows in 2017. Investor confidence was amplified on account of policy reforms including, RERA, GST, Benami Transactions Bill, demonetisation, leading the way towards a cleaner sector environment.
Amongst all sectors, the IT and commercial sector has seen maximum private equity Inflows in 2017, which amount to approximately 40% of the total investment flows, which is a 10% increase over last year.
PE Investments in residential and townships have slipped down to 35% of total investments in 2017 as compared to 59% last year, primarily on account of policy changes introduced toward the end of 2016. However, a substantial amount is still being invested in the residential sector majorly in the form of debt structures.
An interesting observation is that the warehousing and infrastructure asset class that had received negligible traction till 2016 suddenly saw a boost investments amounting upto 9% of total investments in 2017.
Total investments volumes in the office asset class are clearly on an improving trend with equity participation continuing to be the preferred mode for investment by PE players.
Private equity inflows in Office & IT for 2014-2017 YTD are 150% higher than the previous seven year's inflows combined signalling increased demand. Vacancy in major commercial corridors across prime office city markets are currently in single digits. Ongoing space requirements point towards healthy demand in the future. Hence, development of commercial projects remains attractive.
Private equity (PE) players are back investing in retail real estate through investments in superior retail malls across cities largely due to the limited supply of retail space across the country. INR 10,000 crore has been invested over last 3 years which has 93% share of pure equity.
Surprisingly, over 58% of total investments in the Indian Retail Mall universe have been in Tier II cities, signalling at the growth potential of rising consumption is resulting in such investments.
PE investments include platform and entity-level deals as well as acquisition of stakes in leading malls. Prime examples being -Blackstone which has set up a subsidiary - Nexus Malls for managing its retail investments across Tier I as well as smaller cities as well as the CPPIB-Phoenix Mills partnership and the Xander-APG platform.
Hotel buyers in the market today are strategic investors, who firmly believe that the boom in the hotel economic cycle is resuming, making it ideal to acquire operating hotels. New hotel supply in the country is anticipated to slow to 3-4% (y-o-y) over the next 2-3 years - from a high of 6-8% over the past five years and the opportunity to invest in the sector is ripe.
Nearly USD 500 million worth of hotel assets are presently in discussion with a total valuation of close to USD 300 million under our fold as per current mandates, amounting to 11 hotels with about 1,800 rooms. Investments by strategic investors in single assets will be the norm due to lack of large size portfolios. Financial investors can also look at acquiring single assets to form a portfolio.
The Indian real estate industry is reaping the benefits of a reform-driven environment. The new regulatory environment will demand greater accountability from developers and only those who adapt and change shall be able to sustain their business while also improving their chances for attracting institutional investments. We expect the new reforms to improve investor confidence and prepare the template for a more organised and transparent sector leading to it finding it's footing as the most favoured investment destination.