While there has been growing investor interest in India, it will take time for institutional capital to flow into the country’s maturing private real estate market.
“India has garnered more interest from investors looking to adopt a China-plus-one strategy or even a pivot away from mainland China given the dampened economic outlook in the near future,” said Benjamin Chow, head of Asia real assets research, MSCI.
Singaporean landlord CapitaLand Investment Limited is one of the foreign investors planning to boost its presence in India. The firm aims to grow its real estate assets under management in the country from S$4 billion ($2.3 billion; €2.14 billion) to S$8 billion in the next three years, Sanjeev Dasgupta, chief executive officer of CLI India, told PERE.
“We are definitely on track to get that number. But what we are hoping to do is that given the positive market outlook for India on a variety of different fronts, we actually want to accelerate that growth further if we can,” said Dasgupta. Having been in India for 30 years, CLI raised S$368 million in August for its second business park development fund, CapitaLand India Growth Fund 2, against a S$525 million target.
In addition to existing investors that have already established a foothold in the country, India is also attracting interest from new real estate investors. For example, Hong Kong-headquartered real estate investment heavyweight Gaw Capital Partners is looking to open an office in India following the hire of Nitin Gupta as managing director and head of India in 2022. As the firm’s first appointment in the country, Gupta will spearhead Gaw Capital Partners’ foray into the country to capture attractive investment opportunities.
However, this new investor interest in India has yet to be reflected in commercial real estate dealflow. Instead, transaction volume in the country plummeted from a total of $6.4 billion in 2020 to $2.5 billion in 2023 year-to-date, according to MSCI.
Like many of the other markets across the world, dealmaking in India has been hampered over the past few years by the rising interest rate environment, according to Chow. Although the transaction volume remains relatively low compared to pre-2020 levels, the market saw a resurgence in investment activity in the second quarter of 2023 as interest rates stabilized, he noted. The transaction volume bounced back from $321 million in Q1 2023 to $1.2 billion in Q2 2023, according to MSCI.
Dasgupta believes transaction volume numbers represent an “incomplete picture” of the country’s commercial real estate market. “Money is coming into the market in multiple forms. Some of it is coming in as debt, some of it is coming into the REITs and some of it is coming in private real estate equity transactions,” he explained.
A thriving public market
In fact, the past four years were a game changer for the country’s commercial real estate market, which has seen a significant influx of institutional capital via the public market, according to Ambar Maheshwari, chief executive officer at Indian investment management company Indiabulls Asset Management Company.
Since Blackstone sponsored India’s first REIT in 2019, India has seen the listings of four REITs: Embassy Office Parks REIT, Mindspace Business Park REIT, Brookfield India Real Estate Trust, and Nexus Select Trust.
Listed in May 2023, Nexus Select Trust is the country’s newest REIT as well as its first retail REIT. Institutional investors represented 75 percent of the subscription in its IPO. Anchor investors were a mix of domestic mutual funds, insurance companies; global institutional investors including HDFC Trustee, SBI Life Insurance, Morgan Stanley Asia and UK-based independent fund management company Prusik.
Investors have also been coming into the real estate market via private credit. “We saw a lot of credit investors coming through over the past few years. Quite a bit of the money is flowing into real estate,” said Maheshwari. For example, Reuters reported in August that Indian asset management firm Edelweiss Alternatives had invested 359 billion rupees ($3.4 billion; €3.16 billion) in private credit and is looking to launch its next real estate credit fund.
“The opening of the commercial real estate market is a fairly new phenomenon in this country. Listed REITs is only a four-year-old story. There has been a lack of understanding and appreciation of these products. So it does take a little bit of time for institutional investors to put their money into private real estate after all. But the money will eventually get there,” said Maheshwari.
More domestic investor interest
He has seen an uptick in interest from domestic institutions to invest in the country’s property market. With the majority of its capital coming from domestic high-net-worth individuals and family offices, Indiabulls currently manages approximately $800 million in private real estate debt and equity, with half invested in residential credit and the other half in office equity.
Domestic investors’ appetite for India’s commercial real estate market has been growing. According to MSCI, the proportion of cross-border investment in India has been very high historically, clocking in at around 70 to 80 percent annually, but that proportion has fallen to around 60 percent year-to-date. Several significant assets in recent months were acquired by domestic investors, such as Runwal Group’s purchase of a 50 percent stake in a retail mall from GIC.
“Up until recently, the Indian market has been held back by the lack of deep domestic pools of capital that are present in other markets like China, Japan, Korea, Australia, and so on. So, if more domestic investors emerge, then this would provide a springboard for the maturation of the Indian commercial real estate market in the years to come,” said Chow.