Determinants of foreign and domestic non-listed real estate fund flows in India
| Pages | 503-524 |
| Date | 17 July 2020 |
| Published date | 17 July 2020 |
| DOI | https://doi.org/10.1108/JPIF-08-2019-0107 |
| Author | Ashish Gupta,Graeme Newell,Deepak Bajaj,Satya Mandal |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
Determinants of foreign and
domestic non-listed real estate
fund flows in India
Ashish Gupta
RICS School of Built Environment, Amity University, Noida, India
Graeme Newell
Faculty of Economic, Finance and Property,
School of Business, Western Sydney University, Parramatta, Australia
Deepak Bajaj
Chongqing Jianzhu College, Chongqing, China and
SKEMA Business School France,
Lille, France, and
Satya Mandal
RICS School of the Built Environment, Amity University, Noida, India
Abstract
Purpose –Real estate forms an important part of any economy and the investment in real estate, in turn, is
impacted by the macroeconomic environment of that country. The purpose of the present research is to
examine macroeconomic determinants of foreign and domestic non-listed real estate fund (NREF) flows and to
examine whether they are similar or different for an emerging economy like India.
Design/methodology/approach–The long and short-run cointegration between the time-series variables is
estimated using the autoregressive distributed lag (ARDL) bounds test and error correction model (ECM) using
quarterly data across the 2005–2017 period. ARDL is a suitable method for short time-series data.
Findings –The empirical results indicate that domestic NREF flows are positively and significantly impacted
by real GDP and performance of listed real estate stocks (i.e. BSE realty index). Whereas, foreign NREF flows
are positively and significantly impacted by the exchange rate, performance of listed real estate stocks and
domestic NREF flows.
Practical implications –The empirical results have significant implications for academicians, policy
makers and real estate market practitioners. In the context of these results, some interesting insights are gained
that would help in the implementation of the policies aimed toward increasing the fund flows in the real estate
sector, which in turn would have a significant trickle-down effect on the Indian economy.
Originality/value–The existing literature looks at macroeconomicand other drivers of foreign investment in
international real estate investments. However, there are very few studies on the determinants of domestic real
estate investment flows and on determinants of NREFs’investment flows; particularly in emerging markets.
The present study, in contrast, evaluates simultaneously the macroeconomic determinants of the domestic and
foreign NREFs’investment flows in India. The ARDL and ECM method used has been applied for the first time
to the study of NREFs.
Keywords Investment determinant, Non-listed real estate funds (NREFs), Foreign and domestic investment,
India, Autoregressive distributed lag (ARDL)
Paper type Research paper
1. Introduction
Real estate forms an integral part of the national economy and represents a significant part of
any nation’s wealth (Gupta et al., 2018;Sch€
atz and Sebastian, 2009). Savills (2016) have
estimated real estate assets form about 60% of the global investable asset classes including
Foreign and
domestic
NREF flows
503
The authors will like to thank the two blind reviewers and Dr. C. P. Gupta, DFS, Delhi University for
constructive feedback and support.
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-578X.htm
Received 8 August 2019
Revised 8 January 2020
Accepted 8 January 2020
Journal of Property Investment &
Finance
Vol. 38 No. 6, 2020
pp. 503-524
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-08-2019-0107
equities, bonds and gold. They estimated in 2015, the global property value to be about 2.7
times global GDP. The macroeconomic environment has a significant impact on the
investment flow in real estate (Rodr
ıguez and Bustillo, 2010;Mak et al., 2012). Despite the
importance of real estate in global investable assets and on the national economy, there is a
limited empirical and theoretical literature exploring linkages between real estate investment
and the countries’macroeconomic environment (Sch€
atz and Sebastian, 2009). The present
study, in contrast, establishes linkages between the investment in real estate (both domestic
and foreign fund flows) and the country’s macroeconomic environment; for India as an
important emerging market.
Investments in real estate could be directly in buildings and land or indirectly through
publicly listed or privately owned investment vehicles. The indirect investment could be
through publicly listed REITs and shares of listed real estate operating companies (REOCs)
and privately through the non-listed real estate funds (NREFs). NREFs have gained
prominence and institutional investors have used NREFs to gain exposure to high-quality
real estate (Haran et al., 2008;Fuerst and Matysiak, 2013). In the absence of any listed REITs
[1] (until recently) and poor performance of real estate operating companies (REOCs [2])in
India, NREFs have emerged as a preferred real estate investment vehicle for institutional
investors seeking Indian real estate exposure; particularly in the opportunity real
estate space.
The global investor’s interest in India can be understood by looking at the global
uncertainty and volatility due to many factors including a trade war between the US and
China, US and Iran and events like Brexit (or no Brexit). In these times of global uncertainty,
IMF (2018) projected the advanced [3] economies’GDP growth to reduce in 2019 to 2.1% as
compared to 2.3% in 2017. In the same period, emerging and developing Asian [4] economies
are projected to reduce to 6.3% from 6.5%, and China in this period is expected to reduce to
6.2% from 6.9%. On the contrary, India is expected to grow faster from 6.7% in 2017 to 7.4%
in 2019. India was the seventh largest global economy in 2018 and is expected to become the
fifth largest in 2019 and the third largest by 2033 (CEBR, 2018). Global investors have played
an important role in Indian real estate markets, JLL (2018) reported that foreign investment
constituted 70% of the institutional investment in Indian real estate in 2018. The importance
of foreign investment is not difficult to understand,as most of the published literature looks at
the determinants of foreign investment (eg: Lai and Fischer, 2007;Rodr
ıguez and Bustillo,
2010;He et al., 2011;Lieser and Groh, 2011;Ross, 2011;Mak et al., 2012;Fereidouni and
Masron, 2013a,b;Salem and Baum, 2016;Mauck and Price, 2015). We were not able to find
any exclusive study on the determinants of domestic real estate funds flow. Mauck and Price,
(2015) and Fuerst et al. (2015), however, evaluated the determinants of domestic and foreign
investment simultaneously, which raises a question of relevance to the policy makers and the
real estate fund managers as to whether the determinants of foreign investmentare different
from domestic investment. Given the importance of emerging markets globally, the present
study evaluates the macroeconomic determinants of domestic and foreign NREF investment
flows simultaneously in India, which is one of the fastest growing major global economies; as
well as being a key emerging market. Due to a reform-driven agenda of the present
government undertaking tax reforms, introducing a real estate regulator and REITs (for
further details refer Gupta et al. (2017)), India offers unique opportunities for investors and
was amongst the top ten transparency improvers in the world (JLL, 2018a). Past studies (e.g.
Fereidouni and Masron (2013a,b)) indicate investors while investing in emerging economies
in contrast to developed markets consider transparency as a key attribute. The present study
analyzes the time-series data over 2005–2017using the autoregressive distributed lag (ARDL)
bounds test approach to study NREFs, which is another contribution of the present study.
The present study provides a holistic review of the macroeconomic determinants of
domestic and foreign NREF investment flows in the context of India. Subsequent sections
JPIF
38,6
504
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