Institutional Investments In Real Estate: An unfailing option for investors despite the pandemic
Institutional investors, such as global funds, private equity companies, and local businesses, are projected to continue to pour money into Indian real estate in 2022. Broad-based growth, fueled by low-interest rates, continuing monetary stimulus, improved revenue visibility across asset classes, and inclusive growth policies, are anticipated to support these investments. Newer financing opportunities are opening up for fund managers as a result of resurgent corporate confidence fueled by a recovery in demand across segments.
Residential real estate will also benefit from these expenditures, according to analysts, who anticipate the category will reach pre-pandemic quarterly sales volumes in 2022 and, given the strong pace, may even surpass pre-demonetization quarterly sales in the second half of 2022.
The demand for Indian real estate in institutional investment has started growing yet again. According to a recent report by a prestigious business times magazine, the investment flows in the institutional real estate sector in Q1 and Q2 together was $ 2.9 billion.
After the pandemic-related slowdown, the investors are regaining interest as the first half of the calendar year 2021 has already seen two-fold investment in comparison to 2020.
Despite remote offices, commercial office assets have accounted for more than half of all the expenditure. (58%). A well-known firm has also estimated that the total inflow in 2021 could reach $ 5 billion by the end of the calendar year.
This comes as great news after the 12 % decline this sector witnessed in 2020 due to the covid restrictions. But the 2021 profit is also credited to investors looking to make profits amid the pandemic. Institutional investment in 2020 stood at 4.8 billion.
Where were the most investments recorded?
Talking about assets, the firm’s consultant had further noted that the investors have continued to invest in office assets. They account for 35% of total investment from January to June 2021.
Also, during this period, the Industrial warehousing sector witnessed $775 million of investment with a 27 % share in total Institutional Investment.
The residential sector, which is still facing some liquidity challenges, had a mere 4 % share in total investment. The data centres made a total of $161 million with the corporate and global data centre tie-up.
Retail Assets accounted for 29% of total investments, despite the disruption to retail business due to covid that led to a major decline in rental revenues, investors seem to be keen on developing ground-up partnerships.
The firm has also mentioned that they expected more capital to be utilized in build-to-core, mixed-use developments along with the logistics assets in the coming years, as more investment platforms come up to form a link between global private equity funds and local developers.
They also mention how they expected a moment to build around logistic assets, life science labs, and data centres as investors diversify their traditional office investments.
How has the pandemic affected financial markets?
The pandemic has had a serious impact on the financial markets. The sudden crash that was seen in the global markets led to foreign investors shifting to dollar-backed assets. The Indian financial market saw a significant downward trend as even the stock markets began to fall.
The stock market reflected true investor sentiment due to the pandemic. And as the companies curtailed offices, layoffs increased and rented offices, malls and complexes were hurriedly evacuated due to financial restraints.
This in return affected the institutional real estate investors who refrained from investing as well and 2020 saw one of the biggest financial depressions.
What to expect from the real estate market in 2022?
The three key drivers of Indian real estate demand and pricing are currently aligned in a positive way. We are positive about real estate’s performance as an asset class, given rising worldwide use and reliance on IT/ITES, substantial inflationary pressures, and low interest rates.
At this time, real estate yields and cap rates have not reacted to the lower interest rates. This is an ideal time for investors to participate in the asset class because of the disparity between low interest rates and excellent entry yields. The price of real estate will rise when yields coincide with interest rates.
What has happened to commercial real estate as a result of the pandemic?
All asset types, including commercial real estate, were affected by the epidemic. The asset’s quality is critical in these instances. During the epidemic, A-Grade commercial real estate has been one of the most stable asset groups. In a post-pandemic era, vacancy numbers in A-Grade complexes have decreased, contrary to expectations, as renters place a higher value on the quality of the workplace.
Buildings of A-Grade with MNC remained largely insulated. Long-term lease agreements, security deposits, lock-in periods, and notice periods bind such renters. Furthermore, some renters make considerable investments in the property and hence remain loyal to it. Due to inexpensive rents and readily available expertise, India has become a worldwide IT/ITES centre for such MNC tenants and blue chip corporations.
MNC tenants have previously reduced the amount of space allotted to each employee at the workplace. The obligation for such tenants in a post-pandemic environment is to raise the designated area per employee by around 20-25 percent. Despite the fact that several multinational corporations have reduced the number of ‘in-office’ employees, the overall space need has remained constant or grown.
But the pandemic taught us many lessons as well, more people are testing with investments and even individual investors are looking to make money through commercial assets. And with the rising of Institutional Investment, various investing platforms are working to bridge the gap between individual and institutional investments.
Assetmonk is one such platform that allows individual investors to experience trading in Institutional-grade properties through fractional ownership of commercial real estate or crowdfunding with attractive returns of 14-21%.
Institutional Investments In Real Estate FAQ's:
Institutional investors in real estate are institutional buyers who look for investment opportunities in real estate. They usually invest in properties in top-tier markets. Like office buildings and Shopping malls. They also invest in institutional quality real estate such as multi-family or industrial/logistic properties.
Institutional investors invest in various security markets on behalf of their clients or shareholders, who usually invest in banks, credit unions, hedge funds, mutual funds, pension funds, and REITs.
Institutional Investors are a large group of investors who collectively invest in large profit security markets such as real estate, stocks derivatives, etc.
They create large pools of assets with the money invested by smaller investors or the other High Net Worth investors who then carry out huge transactions.
Whereas, Individual Investors are people who invest in securities on their level to fulfill their personal goals. Since their assets invested are very small, they tend to invest through a broker and have to pay high commissions.
Retailer or non-institutional investors are the people who do not indulge in complex investments. Every person that buys and sells debts, equity through a broker or other agents is a non-institutional investor. Such investments are made to fulfill the personal needs of individuals such as retirement planning or education funds.