PE investments in Indian real estate see steep decline in 2023

Private equity (PE) investors pumped $3 billion into various sectors in the Indian real estate market, a steep 44% decline from the previous year, consultant Knight Frank India said in a report.

Geopolitical uncertainties and high interest rates globally were the reasons for investors to slow down investments into office spaces, warehousing and residential segments, Knight Frank India said.

“Since March 2022, the US Federal Reserve and the Central Bank of Canada resorted to multiple interest rate hikes, bringing current rates to 5.50% and 4.50% respectively, nearly doubling from pre-pandemic levels,” Knight Frank said in the report, adding that the “surge in interest rates has curbed investment activities from these nations due to increased capital costs and concerns about a potential recession.”

The impact of the slowdown in PE investments was “relatively moderate, with some substantial transactions in the office and warehousing sector.”

Foreign investors accounted for 78% of the total PE investments, the report said, adding that India has seen growing interest from investors in the Middle East and Asia over the past two years.

“This is partly due to the vulnerability of Western investors to fluctuating interest rates and the growing wealth in these areas,” the report said.

The office industry emerged as the frontrunner in attracting investments, securing 58% of total PE funds, followed by warehousing at 23%, and residential properties at 19%.

The retail sector did not see any significant PE deals in 2023, the report said.

Geographically, Mumbai and the National Capital Region (NCR) cornered most PE investments across sectors, the report said.

Reflecting the cautious approach of investors, over 69% of all investments were directed towards readily available assets.

Despite the current global apprehensions impacting investments, there is an anticipation of a resurgence in the market once interest rates stabilize and reduce, the report added.