While Indian Real Estate is at a good phase and growing at a rapid scale, what is the role and contribution of Private Equities (PEs) in it? As per the latest Data of January-March, the investment marks at $1 billion by PEs. The Institutional Investors, especially the commercial segment has maintained its robust momentum for one year in the real estate sector of the country. The Data gave more insights regarding the source of inflow. As a result, more than half the inflow has been recorded through a single deal — Brookfield Asset Management’s recent acquisition of Leela Ventures’ portfolio of hotel assets, which is of $570 million. Also, the long-term commitments with preferred developers accounted for another sum of $500 million.
In the year 2018, the real estate attracted over $4 billion of PE inflows, as a decline of 9% on-year. PE funding as of 2018 in the residential segment slipped to a four-year low of $266 million, an 82% drop since 2015. On the other hand, the commercial segment recorded a four-year high of $2.8 billion. Funding seems to be a hurdle for real estate in India in terms of growth prospects because of the crisis with a non-banking financial company (NBFC). PE has come up as a useful alternative for developers who qualify for it. Hence, the year 2019 is expected to bring a marked increase in PE funding, considering the listing of India’s first real estate investment trust. More importantly, a stable fund flow is anticipated for the rest of the year on the back of the Blackstone-Embassy Group REIT creating an additional monetisation avenue for global institutional investors.
The commercial real estate with grade A office spaces have full potential to attract considerable investment from here on. The upcoming general elections and the outcome can bring about more changes in the industry’s prospects. Factors such as political stability, proactive policies and a favourable microeconomic environment will decide upon the amount of funds the Institutional investors will contribute to real estate. In terms of inflows, the commercial office segment resulted in the highest inflows, accounting for 70% share of total institutional investments into the industry last year. In the second position was retail real estate with 7%, while the residential sector attracted the least PE of less than 7%.
Out of the total Private Equities of $14 billion in the past four years in real estate, the data says 2017 and 2018 collectively account for $8.6 billion. Despite deal numbers declining since 2015, the past four years have witnessed the increase of the average deal size by nearly 172%. The amount was $47 million in 2015 which has now rose to $128 million in 2018. The year 2018 also had top 5 major deals that alone contributed almost half of total investments during the year. Regarding the selection and association process with the developers, PE investors seem more cautious. Once convinced, they invest big.