Why Did India's Real Estate Sector Witness a Three-Fold Increase in Foreign Institutional Inflows, totalling $26.6 Billion?

India’s real estate sector has seen a three-fold increase in foreign institutional inflows, amounting to $26.6 billion between 2017 and 2022, according to a report by real estate services firm Colliers. The growth is attributed to structural and policy reforms that have enhanced transparency and ease of doing business in the sector.

The report, titled “India- High on Investors’ Agenda," examines the factors that make India a top choice for global investors and tracks the real estate market’s recovery and growth. It also explores opportunities in core and alternative asset classes such as Global Capability Centers (GCCs) and Data Centers.

Foreign investments accounted for 81% of total investments in real estate during the period, driven by investor-friendly FDI policies, increased transparency in deals, and higher investment limits. Institutional investments remained strong in Q1 2023, with a 37% YoY increase to $1.7 billion, led by the office sector.

Indian Real Estate Industry

According to a report by the National Real Estate Development Council (NAREDCO) and KPMG India, the Indian real estate industry is showing strong signs of growth, even as the global real estate industry continues to recover from a period of stagnation. The report states that the market size of the Indian real estate industry in FY21 was indexed at $200 billion and is expected to reach $1 trillion by FY25. This growth is expected to contribute to 13 per cent of the country’s GDP.

NRI Investment

According to a recent report by ANAROCK, there has been a 33 per cent increase in NRI investment in Indian real estate in 2021 as compared to 2020, backed by supportive policies from the government.

India’s property market currently offers attractive pricing, better valuations, and higher yields compared to other cities in the region, making it a preferred investment destination. Major Indian cities like Bengaluru and Mumbai provide higher yields at lower pricing points.

Investments across various real estate asset classes have seen significant inflows in recent years, with the office sector accounting for 40% of total inflows between 2017 and 2022. Foreign investments in industrial assets have also grown, constituting 87% of total investments in industrial and warehousing during the same period.

Sankey Prasad, chairman and managing director of Colliers India, said, “India’s favourable demographic indicators, deep digital talent pool, developmental government policies, infrastructure advancements, and competitive costs have made it one of the top choices for global enterprises, fuelling real estate demand in India.” He added that the strong economic and business fundamentals are enhancing institutional investors’ sentiments, forging strategic partnerships to expand their portfolios.

Investor-friendly FDI policies

It added that the country’s investor-friendly FDI policies, increased transparency in deal structures, and higher investment limits through the direct route have encouraged global investors to invest in India’s real estate sector. Institutional investments in real estate continue to remain upbeat in Q1 2023 as well, rising by 37 per cent YoY at $1.7 billion, led by the office sector. The introduction of new government reforms like the RERA Act (Real Estate Regulatory Authority) has infused confidence in NRIs (Non-Resident Indians) and HNIs (High Net Worth Individuals) to invest in Indian markets. With attractive pricing, better valuations, and higher yields compared to other cities in the region, India's real estate market is expected to continue attracting foreign and domestic investments. This growth is likely to contribute to the country's economic development, creating employment opportunities and enhancing the overall standard of living.