USD 14 billion foreign PE to Indian real estate in five years

Indian real estate attracted nearly USD 14 billion of foreign private equity (PE) between 2015 and the third quarter of 2019, says the latest ANAROCK data. Sixty-three percent (approximately USD 8.8 billion) of the total foreign investments backed commercial real estate, the real estate services company said.

The residential sector attracted just USD 1.5 billion of foreign PE in the same period, trailing even the retail sector which saw cumulative inflows of USD 1.7 billion. Logistics and warehousing drew over USD one billion, and the remaining investments went into mixed-use developments.

In stark contrast, domestic PE funds pumped nearly USD 2.4 billion into Indian real estate since 2015, of which nearly 71 percent (approximately USD 1.7 billion) went to the housing sector, ANAROCK said. This was a period of considerable stress for the residential segment; domestic funds invested heavily into a sector plagued by issues like delayed/stalled units, low sales, and fairly lower yields.

This made exiting investments with substantial gains difficult, it said. The commercial real estate segment, on the other hand, delivered a comparatively stellar performance in the last five years.

Steady demand and rising rentals gave foreign investors a decisive edge. The top five foreign investors - Blackstone, Brookfield, GIC, Ascendas, and Xander - alone contributed 75 percent of the overall USD 14 billion into Indian real estate.

Interestingly, their focus was not limited to the top seven cities and extended into tier 2 cities like Indore, Ahmedabad, and Amritsar. The top five domestic funds - Motilal Oswal, HDFC Venture, Kotak Realty, ASK Group, and Aditya Birla PE - invested nearly 54 percent or approximately USD 1.3 billion into Indian real estate.

They focused exclusively on the top seven cities. Indian commercial real estate will continue to attract PE funds as there is a high demand for Grade A office spaces across the top Indian cities, according to ANAROCK.

Earlier data indicated that the first three quarters of 2019 alone saw inflows of USD three billion in the commercial segment - an increase of 43 percent over the corresponding period in 2018. Logistics, warehousing, and retail will continue to witness considerable growth on the back of recently-eased policy norms for the retail sector, aimed at boosting growth and attracting more investments, the company said.

Over the short-to-mid-terms, the housing sector - which has the greatest need for liquidity infusions - will retain its 'poor cousin' status and garner much more gradual attention from wary investors, it said. Though the Finance Minister Nirmala Sitharaman recently unleashed an alternative investment fund (AIF) of Rs 25,000 crore to revive languishing housing projects across the country, investors will watch for actual implementation and deployment, it was stated.

According to ANAROCK, the residential segment drew approximately USD 295 million PE funding in the first three quarters of 2019 (against USD 210 million in the corresponding period last year). Though this constitutes an impressive 40 percent annual gain, investments are still far below the peak levels of 2015, when housing drew PE investments of approximately USD 1.5 billion, it said.