PE investments into real estate decline by 19% in FY18: Report

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Published - Apr 26, 2018 4:43 AM

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Private equity (PE) investments into the country's real estate sector declined by 19 percent year on year in financial year 2017-18, said a report.The decline in PE investment could reflect turbulence in the real estate sector, property consultancy Knight Frank said in its report.

"But going by the investment numbers for the last few years, excluding the major brownfield investments worth more than USD 500 million, the investments have been on an increasing trend since 2014 and the strong momentum which was observed in FY17 has sustained in FY18," it added.

The overall PE investments, however, dropped by a marginal 5 percent in FY18, according to the study.In FY17, there have been several large-ticket brownfield transactions particularly in commercial real estate covering office and retail assets (malls).

The USD 1.4-billion deal between DLF and GIC and the USD 1-billion deal between Hiranandani and Brookfield elevated the total investments for FY17, according to the report.

Knight Frank said such transactions do not happen often due to the sheer size of assets that are involved in the transactions, as those assets have a long gestation period and take more than a decade to mature and become operationally efficient.

The report said that the structural reforms introduced by the government over the past 2-3 years have helped the sector to move towards a relatively transparent environment.

"This transformation has attracted a significant number of organised players," it added.

Among the asset classes, the residential sector is reeling under pressure for the last 3-4 years but commercial real estate is performing well.

"While the office market is maintaining its robust annual transaction volumes, retail spaces, particularly select shopping centres in tier I and II cities are catching the attention of international funds," the report said.

Warehousing is one of the most promising sectors in India, according to Knight Frank, as the implementation of the GST, continued government focus on building industrial corridors and the unabated growth of the Indian consumption market have whipped up the growth potential of the sector.

Meanwhile, the report said investors have pumped in around USD 24 billion in the form of debt and equity into real estate since FY15.

While the PE investments into residential asset between FY15 and FY18 were primarily in the form of structured debt mainly due to the inherent risk of the sector, those into commercial assets were in the form of equity.

Out of USD 24 billion, around USD 10 billion (42 percent) was in the form of equity investments into commercial assets such as prime office assets and select retail malls.

According to the consultancy, the last couple of years have seen unprecedented interest for good quality rent-yielding office and retail assets in cities across India among global financial institutions such as the private equity giants, sovereign funds and wealth funds.