Real estate sector registered USD 5 bn institutional flow of

Real estate sector registered USD 5 bn institutional flow of funds in the year 2020: JLL

 ·        This is almost 93% of the total investment in 2019 which was at USD 5.4 bn

·        There were 27 deals transacted in 2020 over 54 in 2019

·        Bengaluru continues to attract maximum investments

Institutional investment⁽¹⁾ in the Indian real estate staged a smart recovery during Q4 2020 with USD 3.5 billion investments. As a result, 2020 closed with USD 5 billion investments, equivalent to 93% of 2019 transactions (USD 5.4 billion), despite a sudden halt brought on by the pandemic according to JLL’s ‘Capital Markets Update: Q4 2020’ report released today by JLL.  

The pandemic led to pull back in investments due to uncertainty over income stability and return to normalcy. However, large global funds took this opportunity to negotiate portfolio deals with developers who offered quality rent yielding assets in cities with a higher presence of global technology players as well as global in-house centers. A deeper analysis of institutional investments in 2020 indicates that the recovery has been narrow-based, as 27 deals were transacted in 2020 over 54 in 2019. The two large portfolio deals with an estimated value of USD 3.2 billion accounted for 65% of the total investments in 2020. These investments by large global funds in times of uncertainty validate the investment potential of Indian real estate.

  Office assets account for a major share of investments in 2020

The two major deals in 2020 - the Blackstone Group taking over of 21 million sq. ft of completed and under construction office, retail and hospitality assets from Prestige Estate Ltd. for estimated USD 1.2 billion and the Brookfield Group’s  entering into an agreement with RMZ Developers to acquire around 12.5 million sq. ft of office and co-working assets for around USD 2 billion indicate that office assets account for a major share of the portfolio deals..

 “India’s office sector has witnessed continuous growth over the last four years with the average annual net absorption crossing 30 mn sq. ft, leading to steady rentals and capital appreciation till the onset of the pandemic. Global investors, looking for stable yields and regular returns, believe that the technology sector driven office space demand is expected to grow further and keep absorption robust”, said Dr Samantak Das, Chief Economist and Head of Research & REIS (India), JLL.

Lessons from past

The 2020 comeback holds significance when seen against the pace and percentage of the recovery from the last global financial crisis (GFC). Not only did the post-GFC recovery phase take more than three years, but the drop in 2009 was more than that witnessed in 2020 (see Fig. 1). Over the years, investments have moved in tandem with reforms and maturity in the real estate sector. Moreover, various structural reforms during the last decade have brought much-needed transparency and accountability to the sector.

 A sharp recovery in institutional investments in 2020 over the previous global crisis

RBI stays put to aid in maintaining real estate sector

RBI stays put to aid in maintaining real estate sector recovery | Ramesh Nair, CEO and Country head, JLL India

 RBI stays put to aid in maintaining real estate sector recovery

“Higher than expected recovery in Q2 FY 21 GDP reflects the resilience and robustness of the Indian economy. RBI’s decision to hold the policy rate and accommodative stance to revive growth on a sustainable basis augurs well for the economy. This is in spite of the fact that inflation for Apr to Oct 2020 is hovering above the higher limits of RBI’s inflation target.

 The decision to maintain the policy rate was in line with the real estate sector’s expectations as the sector is just recovering and is yet to bounce back to Pre-COVID-19 levels. Residential real estate witnessed initial signs of recovery with sales increasing by 34% in Q3 2020 over Q2 2020. 

 The RBI’s decision to hold the rate will help homebuyers to avail the benefit of the prevailing lowest mortgage rates. Green shoots of recovery armed with other incentives such as stamp duty reduction in some states and the flexibility of developers in offering best prices/payment schemes will help in further improving home sales.

Quote by Mr Dinesh Kmar Khara Chairman

Quote by Mr. Dinesh Kmar Khara Chairman, SBI on RBI's Monetary Policy

“Today’s policy statement by RBI is a perfect exposition of doing “whatever it takes” to revive growth. With growth projections at -9.5 percent and inflation set to be higher at least for now and the possibility of renewed infections in many countries, the monetary policy committee has righty chosen to keep the policy stance accommodative and relying more on discretion based policy responses rather than being strictly rule-based. 

Accordingly, the decision to go down the OMO route for SDL borrowings, increasing the limit for risk weights for the retail portfolio up to Rs. 7.5 crores and linking housing loan risk weights to LTV ratio are policy innovations that will please the markets and nudge the term structure of rates lower. The policy has also targeted specific sectors that have high forward and backward linkages notably the retail and real estate sector. 

Additionally, the decision to operationalize the Co-origination model is right as it brings the best of banks and NBFC together. This will surely increase the reach of the financial sector at such a critical point. The other focus of development and regulatory policy namely discontinuation of automatic caution listing for exporters, 24x7 availability of RTGS, and perpetual validity of CoAs issued to payment operators are also welcome measures. Overall the policy is fixated to revive growth and has attempted to prepare a conducive ground for the same.”

RBI maintains status quo on policy rates,

RBI maintains status quo on policy rates, real estate sector welcomes additional measures to boost home loan lending

 “RBI is clearly looking through inflation giving more priority to growth, bearing in mind that inflation is led by supply chain disruptions. India’s GDP contracted by 23.9 percent in the April-June quarter of 2020. But the future quarters are expected to be better with the RBI forecasting GDP to contract by 9.5% in FY 2021. Importantly, the Central Bank believes that GDP growth may turn positive by the fourth quarter.

 The headline inflation rate was recorded at 6.7 percent during April-July 2020 due to strong supply-chain disruptions. This is above the outer limit of RBI’s medium-term inflation target 6%.  The Central bank continues to maintain its accommodative stance to allow elbow room for further policy interventions if required.  Thus, the repo rates remained unchanged at 4%. So far, the RBI has slashed rates by 115 basis points this year to support the economy and real estate sector in particular, amid the COVID-19 pandemic.

 RBI has rationalized risk weights for all new home loans which will be availed until 31st March 2022. Unlike the existing system where it was linked to both size of the home loan and loan to value (LTV), it will now be linked to only LTV of home loans. This is timely and a step in the right direction and is expected to provide a fillip to housing loans, thus having a positive impact on the residential sector.”

Mr. Satish Magar, President, CREDAI National statement on

Mr. Satish Magar, President, CREDAI National statement on RBI’s announcement today

We expected more stringent measures from the RBI booster to revive the economy. Real Estate sector can act as a catalyst in resurrecting the economy, backed by stringent fiscal and non-fiscal measures. The move of moratorium extension is a short term piecemeal solution to a long term problem. 

The interest rate should be reduced with firm liquidity measures as this is the   need of the hour backed by one -time restructuring of loans to help the real estate sector from crumpling. RBI has tried to ease the pressure on borrowers and has extended group exposure limit for lenders to corporates from 25% to 30 % but this is not enough to solve the ongoing liquidity crisis. 

Government now needs to ensure that banks are forthcoming and are passing on the benefits to us currently, there is a dearth of income in the sector owing to the COVID crisis. Real estate industry remains the second largest employer after agriculture and prolonged slowdown in the sector will have a direct impact on  survival of 269 allied industries hence, it is critical for the Government  and RBI to take immediate measures  to  provide economic relief.