In the current fiscal year, global investors have exercised caution in the Indian real estate sector, with PE inflow registering a significant decline of 44% at USD 3 billion, compared to the previous year's USD 5.36 billion, according to Knight Frank's report. This trend, persisting since 2021, reflects near-record low deal volumes with only 23 transactions in 2023. Geopolitical uncertainties and a high-interest rate environment have restrained investments, notably from the US and Canada. However, Singapore has emerged as a key contributor, representing over 50% of total inflow. Office assets lead PE investments at 58%, followed by warehousing at 23%, and residential properties at 19%. Mumbai attracts the highest investments, signalling potential positive shifts with rising interest from Asian private equity players as global challenges ease.
In the current fiscal year, global investors have displayed a sense of caution in channeling funds into the Indian real estate sector. As of December 12, the PE inflow has registered a notable decline, standing at USD 3 billion, constituting a 44% reduction compared to the entire preceding year, as per Knight Frank's report. The data presented by the real estate consultant reveals that the Indian real estate market witnessed USD 3,024 million in PE investments arising from 23 transactions between January 1 and December 12, in stark contrast to the USD 5,357 million recorded in the year 2022.
The trend of declining PE investments in real estate has persisted since 2021, marking the lowest point in eight years and characterized by near-record low deal volumes. In the current year, a mere 23 deals materialized, with the lowest figure recorded during the pandemic year of 2020 at 20 deals, although the raised amount was higher, standing at around $4 billion. The ongoing global geopolitical uncertainties, along with a high-interest rate environment characterized by multiple rate hikes from the US Federal Reserve and the Central Bank of Canada, have constrained investment activities, particularly affecting the US and Canada.
However, the consultant notes a significant improvement in PE investments from Singapore, contributing over 50% to the total inflow. In terms of the specific segments within the Indian real estate market, office assets have taken the forefront position, commanding a 58% share of the total PE investments, followed by warehousing at 23% and residential properties at 19%. Notably, the retail sector remained devoid of any PE deals in 2023. Despite the overall decline, foreign inflows have been the predominant force driving investments throughout the year, with domestic investment trailing behind.
Shishir Baijal, Chairman and Managing Director of Knight Frank India, observes a noteworthy rise in interest from Asian private equity players, which, particularly amidst the impact on investments from western countries, signals a potentially positive shift for the Indian PE market. Analyzing the geographical distribution of investments across segments, Mumbai emerged as the primary recipient, attracting the largest proportion of investments at USD 1,685 million.
The National Capital Region followed suit at USD 835 million, with Bengaluru securing USD 347 million in PE investments during the specified period. With the gradual easing of global challenges, there is an expectation that the resilience of the Indian economy and the favorable economics of real estate assets will ignite a revival in PE investment activities within the sector.
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