PE deals in real estate slump to lowest in 5 years in first nine months of FY24

Private equity (PE) investments in Indian real estate declined 26% in the first nine months of the fiscal on subdued interest from foreign and domestic investors, consultant Anarock said.

PE investments declined to $2.65 billion in the period between April and December 2023 from $3.6 billion in the year-ago period, the real estate consultant said, adding that the figure was the lowest in past five years.

Global geopolitical uncertainties and a high interest rate environment are behind the muted interest from foreign and domestic investors, Anarock said.

A healthy market for residential real estate, with many projects being sold even before they are completed, has led to better cash flows for real estate developers, reducing their need for external high-cost financing such as from alternate investment funds (AIFs). AIFs typically pool funds to invest in assets such as real estate, private equity, hedge funds, and other less liquid investments.

“Domestic AIFs have seen lower activity levels as their favored asset class – residential real estate debt – witnessed lower demand for high-cost funds. Strong residential pre-sales and an accommodative stance by state-owned banks have led to reduced demand for capital from the more expensive AIFs,” Shobhit Agarwal, managing director and chief executive at Anarock Capital, said.

The average ticket size of PE deals during the period rose marginally to $95 million from $91 million in the April-December period of the previous year.

Anarock attributed the increase in average ticket size to a large deal in which Brookfield India Real Estate Trust REIT and Singaporean wealth fund GIC together acquired two commercial assets – one in Mumbai and another in Gurugram – from Brookfield Asset Management with an enterprise value of $1.4 billion.

Office assets dominated large ticket equity investments, with data centres emerging as a new asset class for investments, the report said, adding that residential real estate continued to attract debt investments.

The Mumbai Metropolitan Region led the transaction league tables with investments of $694 million against $375 million in the year-ago period.

Foreign investors formed a significant chunk of overall PE investments during the period with an 86% share against 79% a year ago.

The commercial segment cornered most PE investments, followed by the industrial and logistics segment.

The residential real estate market saw consumer strong demand despite elevated home loan interest rates on rising rentals across markets, the report pointed out.

“There’s a notable interest surge, especially in luxury & premium residential projects as homebuyers aspire to transition to more spacious living in vibrant communities, moving away from standalone structures,” the report said.

In the commercial spaces segment, Bengaluru led the pan-India supply, with notable contributions from Hyderabad, Pune, and Chennai.

The sector’s reliance on IT/ITeS diminished, with manufacturing, banking, financial services and insurance, and co-working spaces contributing to resilient demand, Anarock said.

The retail and logistics segments of the real estate market, too, showed resilience, with rentals expected to firm up in both sectors, Anarock added.