Current outlook indicates great days ahead for the Indian real estate sector

There has been some great news for the Indian real estate sector. Institutional investments in the country’s realty space, especially contributions from overseas institutional investors have been heading northwards. Institutional investments in the real estate sector witnessed an annual growth of 41 per cent in Q3 2024, reaching $ 0.96 billion. However, it sharply declined from the record $3.1 billion investments received in the previous quarter. Despite this significant quarterly decline of 69 per cent, the outlook remains positive as the investment figures have almost touched the billion mark, which, when taken under any yardstick, is quite an encouraging sign. The significant uptick in investments compared to the previous year is a testament to the country’s robust economic growth amid the prevailing geopolitical challenges that has left many other economies in shambles. As a result, the share of foreign investors increased from 27 per cent in Q3 2023 to 46 per cent in Q3 2024. Conversely, the share of domestic investors declined to 43 per cent in Q3 2024 from 71 per cent in the same quarter a year earlier. However, the decrease was only 15 per cent in terms of value, going by a recent study by the Chicago-headquartered Vestian, an occupier-focused workplace solutions firm specializing in commercial, residential, industrial, retail and hospitality sectors with offices across the United States, India, China, the UK, Sri Lanka and the Middle East.

According to the Vestian study, investors have shown confidence in India’s growth story on the back of its robust GDP growth. As a result, the real estate sector witnessed increased participation from foreign investors, which led to institutional investments touching a billion in Q3 2024. Additionally, domestic investors are also actively participating, supported by the rapid infrastructure development across the country. Interestingly, residential assets were the first preference for domestic investors during Q3 2024 whereas foreign investors accounted for 64 per cent of the commercial deals. Growing prominence of work-from-office mandates and GCCs (global capability centres) have attracted myriad foreign investors, leading to an increase in the share of commercial investments from 24 per cent in Q3 2023 to 71 per cent in Q3 2024. On the other hand, the share of residential sector reduced to 19 per cent in Q3 2024 from 44 per cent in the same period a year earlier.

Despite this scenario, investment in residential assets is expected to grow in the coming quarters as niche asset classes such as co-living, senior housing and serviced apartments are gaining traction. Furthermore, in terms of cities, Chennai received the highest investments during Q3 2024 with a massive 48 per cent share. A majority of investments in the city were concentrated in industrial and warehousing, commercial, and residential sectors. Moreover, proptech platforms have also garnered traction with 22 per cent share of total investments recorded during Q3 2024. The share is likely to inflate further with the extensive use of artificial intelligence and machine learning in the real estate sector. This encouraging momentum must continue into the future.