By innovative | 28 July, 2021
Despite COVID-19, overall estimated private equity inflows into the Indian real estate market are expected to hit $5 billion in 2021, up 4.1 percent from 2020, according to Colliers' recent report Investments Turbocharged with a Focus on Alternative Asset Classes.
According to the report, the entire private equity inflow into real estate in H1 2021 was $2.9 billion, up more than double from H1 2020.
As they attempt to grow their portfolio for a future REIT listing, investors continue to scout for land or properties in the under-construction stage. According to the report, this is due to a scarcity of high-quality, high-yielding projects at reasonable prices, as most significant developers have already formed relationships with institutional investors.
According to the report, land or projects under construction accounted for around 86 percent of all investments in the office sector in the first half of 2021.
Investors remained optimistic about the Indian economy, buying properties in the office and industrial sectors. Office assets that are accounted for 35% of all investments in the first half of 2021, followed by industrial and warehousing assets, which accounted for 27%. Investors are viewing the current situation as an opportunity to purchase houses at attractive prices.
"In recent months, investors' confidence in investing in Indian real estate has grown. According to Piyush Gupta, Managing Director, Colliers Capital Markets & Investment Services (India), "investment trends suggest an interest in broader kinds of assets and structures."
"Opportunistic acquisitions of industrial assets, retail assets including warehousing and data centers, major credit transactions for portfolio acquirements, and development finance are examples of deal types. These figures represent the Indian market's perceived size, long-term stability, and sustainability," he said.
So yet, the impact of the pandemic's second wave hasn't translated into a price change in the housing market. Due to tight profit margins, developers continue to hold off on raising prices, as they did last year. While liquidity limitations may reduce prices over time, any influence on pricing in the short term is quite improbable.
The real estate developer community is cautiously optimistic while being cautious. Jitendra Khaitan, Managing Director of Pioneer Property Management Ltd, is upbeat, saying, "Since the Coronavirus-induced lockdown was removed eight months ago, and the real estate market has increasingly recovered. People realized the benefits of owning a home after the first lockdown stage in April/May 2020; hence the second wave of COVID-19 would impact the industry.
The second wave is unlikely to decline real estate values significantly, but there will be some cascading consequences. Not directly as a result of COVID-19, but fairly as a result of the restrictions placed on the general public's movements and the late delivery of other support services, such as processing papers for applying for home loans, having the agreement for sale or flats registered, or contacting marketing and sales personnel for more information about the project."
Despite the immunization effort providing some hope, the real estate market is anticipated to have a challenging year in 2021, if not a complete washout.
In addition to hurting home sales, the work-from-home concept has harmed the growth of office space leasing organizations. According to a Cushman and Wakefield report, net leasing of office spaces fell to over 35 lakh sq ft in January-March 2021, down from around 70 lakh sq. ft in the same period of the previous year. Since Q4 ended on a promising note with the government's vaccination push picking up steam, the abrupt increase in cases across the country does not speak well for the recovery cycle, and occupiers are expected to stay cautious in the coming months. As a result, possible leasing agreements may be further delayed, thereby affecting leasing rates.
Net lease rates have already dropped by 33% last year, while average commercial property values have dropped by 7-10%.
The demand for flexible workspaces, which had risen in recent months, has plummeted once more. Experts predict that 38 million square feet of the flexible workspace will be leased in the next year if the market recovers quickly.
Consumers are hesitant to visit malls and shops, which has harmed the retail sector in the second phase. Retail mobility has decreased by 55-60% across India, according to statistics provided by Statista, due to partial lockdowns and curfews across cities.
Last year, Blackstone Group, one of India's leading office space owners, stated that the COVID-19 outbreak had pushed back project completion dates, reduced demand, and lower rental rates. If the number of instances does not decrease within a month or two, or if the lockdown lasts more than a month, the same thing is predicted to happen.
The year 2021 was predicted to be a year of recovery, and the Union Government's immunization campaign bolstered that belief. However, the recent rise in several parts of India (especially Maharashtra) has led investors to tread carefully.
One of the significant impediments to expanding the real estate sector has been the lack of credit. Due to the existing uncertain climate, which has been compounded by the recent resurgence of the pandemic, financial institutions have been driven to shun riskier investments. This could worsen the real estate industry's already precarious financial status.
Lockdowns and restrictions on construction activity are also likely to disrupt the timely completion of real estate projects around the country.
According to a Knight Frank report, private equity (PE) investment in the real estate market is expected to reach $4 billion by 2020. This was much less than the $7 billion in private equity investment made in 2019. According to the research, the taming of the rising second wave, clarity on the vaccination push, and a feeling of fundamental changes, according to the research, would only increase investors' confidence in the sector.
"The cumulative experience of the past year has taught people the importance of owning a home," says Sanjay Jain, Managing Director, Siddha Group. As a result, after the limits were eliminated last year, people began investing instead of waiting and watching.
Due to COVID-19 and mounting uncertainty revival, real estate players have decided not to offer festive programs or promote their projects in the media in 2021.
However, contrary to predictions, we have discovered that buyer interest in owning a flat/home is much higher than three months ago. As a result, we are highly optimistic about achieving higher sales statistics than in previous months. Effective control of the resurgence, on the other hand, will have a direct impact on investor confidence. The image will be clarified after the pandemic is tamed and the infection rate is brought down, as the lockdowns are also causing job losses and salary cuts."
Overall, the real estate business is no stranger to difficulties. Whether it was the 2008 economic downturn or the infamous NBFC crisis, the real estate industry had met the problems head-on. Though recovery is on the horizon, the second wave might push it back another six months if it is not adequately managed.