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Discussing the size of the opportunity in the current real estate industry, Abhijit Banerjee, Co-Founder & Partner, Upwisery, stated, “We are currently in a period where the real estate market is thriving and over the next decade, the Indian economy's growth will have significant positive impact. Despite recent achievements in residential unit sales, only a small percentage of the nation's population housing needs have been addressed. This presents vast opportunities for potential of expansion for investment in Indian realty.”
Adil Engineer, Managing Partner, Credberg Advisors India Pvt Ltd, added, “Currently, India's real estate market has reached an unprecedented peak. This is an exhilarating period in the industry, with projections indicating a worth of one trillion dollars by 2030. For the first time in recent history, both residential and commercial sectors are thriving simultaneously, breaking from their typical counter-cyclical pattern. This bullish trend is expected to continue for at least another 5-7 years, if not longer.”
Lakshmipathi, Managing Partner – South, ASK Property Investment Advisors stated, “Having been in the Indian real estate sector for 25 years, I've observed unique cycles of maximal supply and absorption, minimal inventory and record-high prices. Present confluence of factors is unprecedented and rightly so indicates that the market is poised to reach a trillion-dollar valuation. The Indian realty index has tripled in the past seven years, with the top 30 developers contributing 28% to the market, potentially growing to 50-60% due to consolidation. Approximately $40 billion in foreign investment has been allocated to real estate, predominantly in office spaces (60-65%) and residential projects (15%), with the remaining assets receiving 20-25%. It is anticipated that this flow will increase to $100 billion within five years due to structural reforms and regulations. We are excited about the tremendous growth and opportunities in this market.”
Adarsh Narahari, Managing Director, Primus Senior Living, added, “As someone involved in senior living and elder care, my opinion may be biased. Nonetheless, I believe the expanding sectors of senior living and co-living provide significant growth potential. This is due to a large demography of upper-middle-class elderly individuals with disposable income who are prioritizing their own needs. Their financial capabilities present considerable opportunities within the real estate market.”
Prashantha Kumar, Senior Partner, Fox & Mandal, agreed, “In today's dynamic era, one can easily equate real estate with human development. The real estate sector is present in every stage of human life, from birth to death. With India's booming 1.4 billion population and numerous enterprises entering its economy, there is immense potential for growth in this market. Success can be seen through prominent companies adapting their strategies to penetrate India's diverse consumer base. Serving such a vast population presents an incredible opportunity, making the Indian real estate market akin to a gold rush.”
Hetal Kotak, Director- South, Mango Advisors summarized, “With experts projecting sustained growth, the year 2023 was that of an unprecedented boom, with housing sales reaching record levels and cities such as Mumbai, Delhi NCR, Pune, Bengaluru, Chennai, Hyderabad, and Kolkata having experienced a surge in residential property transactions, showcasing the sector's robustness.”
THE INVESTMENTS STRATEGY
Initiating the discussion on the kind of investments and the strategies being followed currently, Hetal Kotak said, “Evidently, the premium residential segment is flourishing and the market for luxury and premium products has been steadily growing. Debt has long been utilized as a funding and investment approach in the realm of finance, and it is the equity strategy in real estate that has garnered significant attention.”
Lakshmipathi shared, “Domestic and foreign investors are the key sources of funding for land acquisition. Approximately $10-15 billion is required globally to revive ongoing real estate projects, attracting interest from ultra-high net-worth individuals, family offices, and large pension funds. This investment trend, focusing on specific assets in the office sector, will likely continue in the foreseeable future.”
Abhijit Banerjee expressed, “Since 2019, approximately $29-30 billion in equity from large sovereign funds and others has been invested, with nearly 70% focused on commercial office spaces. These investments are primarily in pre-leased, existing properties rather than Greenfield projects. Additionally, a portion of the funds has gone into warehouses. However, currently, there is an excess of available funds and a scarcity of high-quality assets to invest in.”
Adil Engineer added, “Equity investments predominantly focus on the office sector, supported by major developers and global investors seeking yields. The growth of capital-intensive domains like data centres in Chennai and Mumbai also attracts equity, fuelled by India's surging data market and significant cloud institution investments.”
Informing about the opportunity in India's eldercare sector Adarsh Narahari shared, “Eldercare sector in India is undergoing a profound transformation, as a big emerging market providing a vast space of opportunities to investors."
Prashantha Kumar was of the view that there are two aspects to consider, Equity and Market Supply. “Presently, there is sufficient equity from both foreign and domestic sources, resulting in a surplus of capital. The emergence of Proptech has led to the consolidation of domestic equity through partnerships and investment platforms, making previously unavailable funds accessible for real estate investment but not enough quality projects are available in the market worth investing.”
OPPORTUNISTIC REAL ESTATE INVESTMENTS
Opportunistic real estate investments involve high-growth, high-risk models, and the interest level of investors in this segment varies based on emerging spaces, cities, and locations. According to Prashantha Kumar, “Real estate sector requires innovative developments, such as destination malls and entertainment hubs, to boost tourism and retain talent. By pursuing innovative ventures, cities can maximize their potential in the property market.”
Abhijit Banerjee added, “The potential in the Indian market is immense, eliminating the need for opportunism. In just nine months, India has nearly surpassed last year's absorption of 38 million square feet of grade-A office spaces and residential sales figures in major cities. Despite a large population, consumer purchasing power is primarily concentrated among the top 8-10% earners in 10-15 urban centers. By focusing on these cities, developers, lenders, and intermediaries can address half of India's economy where office spaces, residential properties, and malls are expected to grow substantially.”
Hetal Kotak said, “The focus lies on the high-risk, opportunistic segment rather than simply available opportunities. Grade A office spaces remain a significant, proven opportunity, while larger high-risk projects involving reviving dead projects and establishing sustainable business models are emerging.”
Lakshmipathi added, “The RERA implementation has greatly influenced the real estate sector, leading to growth in consolidation and presenting two key investment opportunities: recapitalization and distressed asset acquisition. As a fund manager, our primary objective is to generate reasonable returns for our investors. Over the past three years, our successful investment and divestment activities have showcased the market potential in this industry.”
Adil Engineer added, “Opportunity lies in refurbishing existing core assets to meet modern tenant demands, enhancing their sustainability standards. This approach can yield significant returns on investment as upgraded properties attract tenants seeking such improvements.”
Adarsh Narahari added, “Intergenerational housing presents a promising future opportunity, as it addresses the emotional needs of consumers across three generations. By offering real estate as a service and creating communities, developers can cater to the unique needs of each generation. However, the investment in emerging sectors like co-living and senior living is slow due to funds' fiduciary responsibilities and risk-reward evaluation. Pioneers in these alternative businesses need to demonstrate profitability and problem-solving capabilities to attract institutional support. As a result, they must initially rely on their own equity until institutions recognize their potential.”
Real estate across segments has witnessed a remarkable performance in 2023 and investor friendly ecosystem and policy framework is attracting the capital from Indian and foreign investors - Hetal Kotak, Mango Advisors
Global economic uncertainty has pushed investors towards safer long-term real estate investment option. Private equity circles always consider high yield cash flows with predictability as their primary focus- Abhijit Banerjee, Upwisery
Maturing of new real estate asset classes and a major transition of the sector spurred by technology will help real estate investors in a big way going forward, offering profitability- Prashantha Kumar, Fox & Mandal
Senior housing and redevelopment projects present a significant investment opportunity, but challenges remain in underwriting and managing complications, making fund managers' perspectives and involvement crucial- C. Lakshmipathi, ASK Property Investment Advisors
Residential real estate low rental yields discourage foreign and domestic investors from funding. A mature rental market with higher yields would attract more capital opportunities in the country- Adil Engineer, Credberg Advisors India Pvt Ltd
Many open-minded individuals, family offices and foreign investors, are showing interest in alternative asset classes and the alternative investments are predicted to surpass traditional ones within the next decade- Adarsh Narahari, Primus Senior Living
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