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PE investment in residential real estate at 4-year low: Report

Institutional investors invested more than US $ 4 billion in the Indian real estate industry in 2018.

Total private equity inflows in residential segment stood at $266 million in 2018, a nine per cent drop against 2017 and 82 percent decline since 2015. Commercial real estate got the lion’s share of investments with US $ 2.8 billion in PE funds, said a report.

A report by Anarock titled Private Equity in Indian Real Estate, revealed that, the average deal size increased by over 170 percent in four years – from  US $47 million in 2015 to $128 million in 2018. At the city-level, Mumbai continued to be the most-preferred destination for overall PE investments. Hyderabad witnessed a sudden burst in investments in 2018, attracting more than US $1.1 billion of private equity. Over a three-year period, Hyderabad surpassed Bengaluru and Chennai, the other two major South Indian cities, in investment inflows.

The commercial office segment saw the highest inflows, accounting for a massive 70 percent share of the total institutional investments into the industry in 2018. Retail real estate came in a distant second with 7 

The report says that out of the total PE inflow was US $ 14 billion into the sector in the last four years, viz. 2015- 2018. “Currently, funding is a major hurdle for the Indian real estate’s growth prospects – especially post the NBFC crisis. Private equity funding is the best alternative for developers who qualify for it,” said Shobhit Agarwal, managing director and CEO, Anarock Capital.

He said that, much of the industry’s prospects also hinge on the outcome of the upcoming general elections. Institutional investors will continue to pump in funds into the real estate industry if they can rely on political stability, proactive policies and a favourable microeconomic environment.”

The report further states that despite deal numbers declining since 2015, the average deal size has increased by nearly 172 per cent in the last four years from US $47 million in 2015 to US $128 million in 2018. Interestingly, the top 5 deals in 2018 alone contributed almost 50 percent of the total investments during the year. PE investors have become more cautious about selecting and associating with developers; however, once confident, they are making larger investments.

Going forward in 2019, institutional investors are likely to continue infusing investments into the maturing Indian real estate market, which offers more scope for growth than developed countries with matured real estate markets. Moreover, strategic policy relaxations to boost the ease of doing business, coupled with the rapidly transformed business environment, will continue to attract private equity to Indian real estate, says the report. Moneycontol

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