Private equity (PE) investments in Indian real estate faced a 26% decline to USD 2.65 billion in the first nine months of fiscal year 2023-24, reveals ANAROCK Capital’s FLUX report. This dip is attributed to a lack of activity from both foreign and domestic investors due to global uncertainties and a high-interest rate environment. The report emphasizes the durability of the commercial office space, a rise in luxury and premium residential project interest, and the warehousing sector's consistent performance. Despite challenges, the residential real estate sector maintained a high performance, with notable demographic shifts and increased demand for spacious living.
Private equity (PE) investments in Indian real estate witnessed a 26% decline, reaching USD 2.65 billion in the first nine months of fiscal year 2023-24, as per ANAROCK Capital’s FLUX report. This downturn is attributed to reduced activity from both foreign and domestic investors, influenced by global uncertainties and a high-interest rate environment.
The report highlights that the top 10 deals accounted for 87% of the total value of PE investments, with an average ticket size slightly increasing to USD 95 million from USD 91 million. The Mumbai Metropolitan Region (MMR) led investments with USD 694 million.
Foreign investors contributed to 86% of the total investments in this period, up from 79% in the same period last year, while domestic investments decreased to 14%. This is largely due to a large deal in which Brookfield India Real Estate Trust REIT and Singapore’s sovereign wealth fund GIC together acquired two commercial assets - one in Mumbai and the other in Gurugram, NCR, from Brookfield Asset Management with an enterprise value of USD 1.4 billion.
The commercial real estate sector gained prominence, driven by one big deal, while residential real estate saw subdued activity. Despite elevated home loan interest rates, the residential sector displayed resilience, driven by rising rental values. There's a notable surge in interest for luxury and premium residential projects as homebuyers aspire to transition to more spacious living.
A demographic shift is observed, with homebuyers increasingly falling in the sub-40 age bracket, influencing product design and value offerings. The report anticipates strong performance in CY2024 based on current demand dynamics.
Commercial office space saw robust performance in the top six cities, with a diminishing reliance on IT/ITeS and contributions from manufacturing, BFSI, and co-working sectors. Growth in the IT/ITES sector is expected as more employees shift to working from offices for 3-4 days a week.
On a quarterly basis, the rental landscape displayed positive momentum, particularly in Bengaluru, Mumbai, and Chennai. Bengaluru led Pan India supply during the quarter, with notable contributions from Hyderabad, Pune, and Chennai. The retail subsegment of Indian real estate is thriving due to economic growth, aggressive mall development strategies, and increased capital allocations. Rentals are expected to rise, as economic buoyancy and robust consumer sentiment have led to healthy demand and trading densities for retail assets.
Warehousing exhibited resilience, driven by government initiatives like the PLI scheme and the global shift towards the China+1 policy. While MMR maintained balanced supply and demand, NCR experienced higher vacancies amid softened demand despite new supply. The industrial sector surpassed logistics in uptake during Q2 and Q3 FY’24.
Tier II cities sustained institutional interest but lacked major product launches.
Rising construction and land acquisition costs led to increased rentals, excluding oversupplied markets like NCR where rates remained steady. Entry yields for greenfield projects range from 9-10% p.a., while capitalization rates for stabilized assets fall within 7.5-8.25% p.a.
Shobhit Agarwal, MD and CEO of ANAROCK Capital, notes that domestic alternate investment funds (AIFs) witnessed lower activity, particularly in residential real estate debt, due to reduced demand for high-cost funds. Strong residential pre-sales and favorable stances by state-owned banks contributed to this decline in demand.
In summary, the report provides a comprehensive overview of the challenges and opportunities in India's real estate sector, emphasizing key trends in PE investments and emerging dynamics shaping the market.
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