Healthy investor sentiment will drive capital flow into Indian real estate

 by Priya Jadhav

Mumbai, 31 January 2024:  While the owners, investors, and occupiers remained cautious about real estate investments in the APAC regions, with a lot longer due diligent process, sentiment towards Indian real estate remained positive, according to Colliers recent Asia Pacific Cap Rates Report | Q4 2023.

The rental rates and capital value for office segment have remained steady inspite of healthy demand for CRE in the key markets of Bengaluru that was countered by supply keeping the cap rates range bound. Mumbai office market saw lower supply with better demand pushing vacancy down, but yields did not change significantly. The return expectation in this stable yield environment remained unchanged with cap rates being range bound.The industrial cap rates remained flat owing to stabilization of yields and asset values as sustained demand from the third party logistic (3PL) players, eCommerce, and fast-moving consumer goods (FMCG) sectors is countered by new supply in Mumbai.

“RBI has maintained an accommodative stand in the interest rates despite the inflation being at the higher end of the targeted tolerance band. Further, the GDP growth rates are revised to be higher for 2024, backed by the growth of private consumption, investment indexes, and trade merchandise, indicating a positive Marco-economic climate. This is indicative of the RBI to continue maintaining an accommodative stance in the short term which will continue to ensure ease of capital supply in the market, pushing up both consumer and institutional investments. It will provide an impetus to the real estate assets where cost of financing and mortgage rates are likely to remain stable, thereby supporting the demand in the market. Additionally, it will lend support to demand keeping capital value and NOIs growth trends constant in yield-based real assets due to both operational and financial costs being range bound, resulting in stabilised cap rates in most asset classes.”, says Ajay Sharma, Managing Director, Valuation Services, Colliers India.

"Given the yields of commercial, retail and industrial segments, the overall real estate sector will witness stable growth, and there will be increased interest in investments leading to significant capital flow to these assets.", adds Sharma.