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5/27/2019

PE Inflow In Indian Retail Real Estate During 2017-18 Doubles From The Previous 2 Years

When the investment of USD 600 million was recorded during 2015-2016 calendar years, the investment resulted in private equity inflows jumping to over USD 1.2 billion between 2017 and 2018 in the retail sector of the Indian real estate

The retail real estate sector in India is definitely going through a growing and profitable phase, attracting private equity investment worth USD 1.2 billion during 2017 and 2018 calendar years, which is supposedly double as compared to the previous two years. The rise in private equity (PE) inflow is attributed to this remarkable achievement. Another credible factor is allowing liberalisation in FDI policies with 51% FDI in multi-brand retail and 100% FDI in single-brand retail under the automatic route. Highlighting the FDI, US-based funds that have invested more than USD 1 billion between the years 2015-2018 in India are Blackstone and Goldman Sachs. On the other hand, funds from UAE, Singapore, Canada and Netherlands based funds have remained equally active.

Considering the total four consecutive years 2015 to 2018, the total USD inflow is recorded to be 1.84 billion inflow. Out of which, tier II and tier III cities attracted nearly 48% funds (USD 880 million) whereas USD 960 million in tier 1 cities. The cities of India that have made it to the list of the most favoured tier 2 and tier 3 cities include Amritsar, Ahmedabad, Bhubaneshwar, Chandigarh, Indore and Mohali.

The opportunity that the retail sector of the country holds in store for PE investors is more than evident. With the introduction of landmark acts such as RERA Act by the government, it has stirred PE investors along with the developers to approach their work and timeline of the projects cautiously. Being pro-consumer legislation, RERA ushers accountability and transparency from developers as well as protects the economic interests of the PE investors.

The reports state a fact that unlike the commercial office sector, retail is to some extent unpredictable as the success in this sector depends on the spending power of its target audience (TA). As a result, shopping malls in tier II and tier III cities have performed surprisingly well, right behind the excellent performance of the tier 1 cities. This also led to increasing opportunities in rental incomes and profitability, causing PE investors to start considering and going big on investment options outside the tier 1 geography.

With a taxation structure like GST, India steps towards a developed economy with good regulation and greater transparency, enabling investors to cheer up and opening a wider platform for them to invest more in the retail real estate. The report also reveals that around 39 million sq ft of organised retail space is expected to enter the market between 2019-2022. Out of the total supply, 71% is expected to come up in tier I cities, and the remaining 29% in tier II and tier III cities.

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