Indian real estate rebounds as institutional investment touches a three-year high of $2.5 billion in three months

After a fad trend of investment in volatile cryptocurrencies and NFTs, the world seems to be gravitating quickly back to traditional investment options like gold and real estate amid these uncertain times.

The Indian real estate sector experienced a remarkable resurgence in Q2 2024, with institutional investments reaching a three-year high of USD 2.5 billion, as per Colliers. This notable growth highlights the sector's resilience and the burgeoning confidence of both domestic and international investors.

Interestingly, foreign investors played a pivotal role in driving Q2 2024 investments, contributing a whopping 81% of the total inflows between April and June this year. Predominantly led by investors from the US and UAE, these foreign investments underscore the global confidence in India's real estate market.

“Private equity investments in Indian real estate have shown remarkable resilience and strength in the first half of the year at USD 3.5 billion, reflecting robust market confidence. With foreign investments leading the charge at a significant 73% share in H1 2024, the sustained momentum is expected to drive positive sentiment for the entire year,” says Piyush Gupta, Managing Director of Capital Markets & Investment Services at Colliers India.

Domestic investors also contributed to increased activity, infusing USD 0.5 billion in Q2 2024, marking a 2.8-fold increase compared to Q2 2023. This uptick indicates growing confidence among local investors in the long-term potential of the Indian real estate market.

“Sustained growth in FDI and Domestic Capital in India Real Estate reciprocates the attractiveness and the positive long-term outlook for infrastructure, construction, and real estate in India. The domestic institutional and retail investor activity in Indian real estate is also expected to remain strong in the second half of the year, driven by healthy economic activity and consumer confidence," Piyush notes.

Industrial and warehousing lead

The industrial and warehousing segment emerged as the frontrunner, attracting a substantial 61% share of the total investments, equivalent to USD 1.5 billion. This surge, representing an 11-fold increase compared to Q2 2023, was driven by significant deals and a robust demand for Grade A supply.

The rise of e-commerce, quick-commerce, and the evolving supply-chain models have amplified investor interest, positioning the industrial and warehousing sectors for continued growth. The advent of AI-enabled warehouses and micro-fulfilment centres is set to further boost this segment in the coming quarters.

Vimal Nadar, Senior Director and Head of Research at Colliers India commented on the positive trajectory: "Driven by foreign investments, the industrial & warehousing segment witnessed about half of the total inflows in the first half of 2024. Interestingly, institutional investments in the segment for H1 2024 are almost twice the inflows in the entirety of 2023. With India's Manufacturing Purchasing Managers' (PMI) Index staying close to 60.0 in the last few months, investor confidence in the industrial & warehousing segment is likely to remain strong in throughout 2024."

Bengaluru and Delhi NCR dominate

Multi-city deals dominated the institutional investments last quarter, grabbing over 70% of the inflows. Among cities, Bengaluru attracted the maximum share of the investment inflows during Q2 2024 with a substantial chunk of 16%, followed by Delhi NCR at 7% of the quarterly inflows.

Bengaluru saw a substantial portion of investments directed towards residential assets, while Delhi NCR experienced strong inflows into the office segment, leading to an 86% year-over-year rise in investment inflows. These regions continue to be key investment destinations, driven by their dynamic markets and robust economic activities.

The residential segment also showed robust growth, capturing 21% of the total institutional inflows in Q2 2024, a significant 7.5-fold increase from the previous year. This growth reflects a rejuvenated market interest and the appeal of residential assets amidst an expanding economy.

With foreign investments for the majority of the inflows and a steady rise in domestic capital, the outlook for the Indian real estate market remains optimistic, says Colliers. Continued growth in industrial, warehousing, and residential segments, along with strategic infrastructure projects, is expected to sustain this positive momentum.

As India continues to enhance its infrastructure and streamline policies, the real estate sector stands poised for continued growth, attracting both domestic and international investments. Investors are hopeful that sustained economic activity and consumer confidence will solidify the long-term outlook for Indian real estate, making it a vibrant and promising investment landscape.