By Shobhit Agarwal, MD & CEO - ANAROCK Capital
Indian real estate attracted nearly USD 14 bn of foreign private equity (PE) between 2015 and Q3 2019, says latest ANAROCK data. 63% (approx. USD 8.8 bn) of the total foreign investments backed commercial real estate. The residential sector attracted just USD 1.5 bn of foreign PE in the same period, trailing behind even the retail sector which saw cumulative inflows of USD 1.7 bn.
In stark contrast, domestic PE funds pumped nearly USD 2.4 bn into Indian real estate since 2015, of which nearly 71% (approx. USD 1.7 bn) went to the housing sector. This was a period of considerable stress for the residential segment; domestic funds invested heavily into a sector plagued by issues like delayed/stalled units, low sales and fairly lower yields. This made exiting investments with substantial gains difficult.
The commercial real estate segment, on the other hand, delivered a comparatively stellar performance in the last five years. Steady demand and rising rentals gave foreign investors a decisive edge. Moreover, the overwhelming response to Embassy Office Parks’ REIT launch - and its superlative performance - saw commercial real estate segment emerge as the bigger draw for investors. Several other large developers are also keen on listing their commercial assets under REITs.
An additional infusion of USD 1.6 bn between 2015 and Q3 2019 was a mix of foreign private equity and funding by Indian developers or investors who collaborated either at project or entity levels. For instance, in 2018, Canada’s CPPIB and India’s Phoenix Group together invested nearly USD 100 mn into a mall project in Bangalore.
Domestic vs Foreign PE Funds
Crystal-gazing Future PE Trends
Indian commercial real estate will continue to attract PE funds as there is high demand for Grade A office spaces across the top Indian cities. Earlier data indicated that the first three quarters of 2019 alone saw inflows of USD 3 bn in the commercial segment - an increase of 43% over the corresponding period in 2018.
Logistics, warehousing and retail will continue to witness considerable growth on the back of recently-eased policy norms for the retail sector, aimed at boosting growth and attracting more investments.
Over the short-to-mid-terms, the housing sector - which has the greatest need for liquidity infusions - will retain its 'poor cousin' status and garner much more gradual attention from wary investors. Though the FM recently unleashed an alternative investment fund (AIF) of INR 25,000 crore to revive languishing housing projects across the country, investors will watch for actual implementation and deployment.
ANAROCK Capital data indicates:
15 May 2019
11 Jul 2019
23 Aug 2019
14 Sep 2019
16 Sep 2019
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