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Amritsar, NFAPost: Private equity inflows into the Indian real estate sector has plunged 85% to 65 billion rupees through August, as both domestic and foreign investors stay cautious in investing in the sector in view of the persisting pandemic, a report by Colliers International showed.

This inflow is just 15% of the corresponding period in 2019, the report titled Future India: Captivating Strategic and Private Equity  Investments said.

The report noted that newer asset classes such as data centres and rental housing gained prominence among investors.

In 2020 through August, data centres and offices have been the leading segments due to demand for cloud infrastructure, and also as they tend to offer steady rental income.

Robust domestic consumption also maintained investors’ con­fidence in industrial and logistics assets, the report said.

“The growing demand for data centres provides an attractive opportunity for investors to capitalise on the interplay of real estate (location), infrastructure (power and fi­bre network) and technology (cloud services),” Colliers International said.

According to the study, through August, data centres have attracted investment of 29 billion rupees spread across two deals in Delhi and Mumbai. The segment garnered the highest share of 46% in the total private equity investments in real estate in India, replacing the commercial office segment from its usual top position.

“Commercial office continues to drive investor demand for quality Grade-A assets and with successful REITs established depth across institutional and retail investors. There is likely to be an enhanced demand for operating assets which may extend to warehousing/ industrial, consumption and technology-driven assets demand, such as data centers,” said Piyush Gupta, Managing Director, Capital Markets and Investment Services at Colliers International India.

Gupta added “Further, market situation is giving opportunities for investors to look at specific situations and residential is providing an excellent opportunity where inherent and pent-up demand remains strong.”

Continued investor confi­dence in office segment

The commercial office segment in India continues to attract significant interest from investors even in the current times of uncertainty around the remote working culture that is likely to continue until the end of 2020, the report said.

The segment attracted investment inflows of 5 billion rupees during 2020 through August, accounting for a 24% share in the total investment pie.

Investors see upside in industrial and logistics assets

According to Colliers International, in 2020 through August, the segment attracted interest from multiple large institutional investors, with investment inflows of 7.8 billion rupees.

“While investment over the coming year may be muted due to pandemic-inspired slower decision-making by investors, the segment is expected to grow over the next two-to-three years as existing participants expand their portfolio and new players enter the market,” Colliers International said.

The segment will attract inflows from both foreign and domestic funds to the tune of 297 billion rupees during 2020-2023, translating into a CAGR of 5%. Against the backdrop of robust demand from e-commerce and other consumer-led occupiers, investors are recommended to stay focussed on the segment to reap the benefi­ts, it said.

Green shoots in the residential segment

Due to the ongoing pandemic, the residential segment has experienced lower sales velocity, leading to near-stagnation. Certain developers are looking to offload bulk inventory to investors by offering steep discounts, owing to tough market conditions, Colliers International said.

Investors may consider equity investment in completed units of affordable and mid-segment residential projects that may offer desirable returns beyond a holding-period of three-to-four years. Investors should benefi­t from low entry price and gradual recovery in the economy due to increasing impetus of the government to revive demand in the residential sector, it said.

Investors should consider partnering with top-tier developers and invest in greenfield residential projects to capitalise on inherent end-user demand. Investors may consider opportunistic assets in hospitality and retail real estate segments that offer attractive valuations.

Investors may also explore opportunities presented by over-leveraged developers who are keen to monetise their assets in order to reduce debt burden, the report added.

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