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Indian real estate attracts US$ 5 billion PE in 2019, commercial projects lead: Report

IBEF:  January 09, 2020

Indian commercial real estate retained its leading position and continued be a preferred destination for global institutional investors in the backdrop of robust office space take-up, falling vacancy levels and rising rentals.

In 2019, Indian real estate attracted more than US$ 5 billion private equity (PE) inflows, out of which around 66 per cent or US$ 3.3 billion was invested in the commercial real estate. Meanwhile, a slight increase in investment in both retail and residential segments was seen in 2019 as against the preceding year, showed data from ANAROCK Property Consultants.

While the most attractive investment destination for PE funds remained the Mumbai Metropolitan Region (MMR), the National Capital Region (NCR) stood out in 2019. NCR was the second-most attractive real estate destination for PE players after Mumbai. Thus, the two mega regions attracted around US$ 2.7 billion which is 53 per cent of overall PE share in Indian real estate in 2019.

"Total PE inflows in Indian real estate remained more or less the same in 2019 against 2018. However, NCR once again emerged as a major hotbed for private equity activity in 2019. Besides office real estate, the retail sector helped NCR gain traction from both foreign and domestic funds," said Mr Shobhit Agarwal, MD & CEO - ANAROCK Capital. "Residential saw some green shoots of revival in 2019 and this will continue in 2020 as the government’s distress funds are deployed."

Now, investors are also more interested in last-mile funding for stuck housing projects as compared to previous years. This, along with the government support of Rs 25,000 crore (US$ 3.58 billion) for stressed projects, will go a long way in reducing stress of the residential real estate from its woes.

"Given the government's involvement, last-mile funding is one of the most sought-after products now preferred by several lenders across geographies. Apart from low execution, land title and sales risk, the segment also stands apart due to faster return of the capital with higher than moderate returns," said Mr Subhash Udhwani, founder of real estate-focused boutique investment bank, Elysium Capital.

In 2019, retail segments also attracted considerable PE attention based on the high demand for organised retail spaces across the country. There was an annual rise of 170 per cent in the retail sector, as it received nearly US$ 1 billion against $355 million in 2018. Moreover, there was also higher PE inflows in residential sector attracting around US$ 395 million against US$ 265 million a year ago.

Out of major markets, MMR witnessed a 19 per cent rise on-year attracting PE inflows of over US$ 1.8 billion whereas NCR stood out with total inflows of over US$ 845 million in 2019 from mere US$ 195 million in 2018.

PE funds of around US$ 390 million and US$ 615 million were attracted by the Information Technology (IT) hubs of Pune and Bangalore, respectively, in 2019. Both cities witnessed an inflow rise by 210 per cent and 47 per cent, respectively in a year. Although, there was drop in PE funds in Hyderabad, the showstopper of 2018. It attracted PE funds of just US$ 440 million in 2019 against US$ 1.1 billion a year ago. According to experts this drop was expected as 2018 was a one-hit wonder rather than a steady trend.

The funding in logistics and warehousing witnessed a drop of 50 per cent attracting about US$ 200 million in PE funds against the previous year.

Mixed-use developments saw inflows of around US$ 155 million in 2019, as compared to US$ 310 million a year ago.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.