PE investment in Indian realty halves to $2.3 bn in Jan-Sep 2020

Mumbai: As the pandemic has severely impacted investments, private equity investments into the Indian real estate sector has declined 56 per cent to $2.3 billion so far in 2020.

Knight Frank India in its latest research report - 'Investments in Real Estate - Trends in PE Investments - Q3 2020' recorded that Indian real estate attracted private equity investments of $2,308 million ($2.3 billionn), across 11 deals in January-September 2020.

During the corresponding period last year, private equity investments into the sector stood at $5.3 billion.

It noted that out of the total PE investments in real estate, office segment attracted the largest share of $1.87 billion, claiming 81 per cent share, followed by warehousing at 10 per cent and residential with 9 per cent.

Shishir Baijal, Chairman and Managing Director, Knight Frank India said: "Private equity investors have taken advantage of this period of economic slowdown to scout for Grade A assets with strong growth trends for investments. As a result of which assets in office segment saw positive investment activities."

He noted that the average deal size for office investments was also seen to be remarkably higher during January-September 2020 as compared to full year 2019.

"Globally, we see investors assessing the resilience and growth momentum of economies to make large scale investments. India's economy, though impacted, is expected to see an accelerated recovery in the next few months," Baijal said.

Rajani Sinha, Chief Economist & National Director - Research, Knight Frank India said: "We have witnessed healthy investor interest in the office segment despite the slowdown this year. While the investors are currently cautious due to the disruptions in the real estate sector and the sharp economic slowdown across global economies, we feel that the investor, interest in Indian real estate will remain strong in the long term."

The report also assesses the assets owned by government of India's Public Sector Units (PSUs) and estimates that the top 45 companies hold commercial properties viable for Real Estate Investment Trust (REIT) at a potential of over Rs 1.2 lakh crore.

It noted that the quantum of the REIT potential can be significantly higher than Rs 1.2 lakh crore if the office buildings of the 45 PSUs are valued on market value basis and also with the addition of office assets of other listed PSUs along with the office assets of the unlisted PSUs which are under the direct ownership of the central government.

"The PSUs have raised funds at higher rates through bonds/NCDs over the past two years compared to the possible yield which can be offered by GOI PSU REIT and the yields offered by the two listed REITs trading currently," said the report.

Baijal noted that the the first two REITs of India have been immensely successful and garnered strong investor interest. The potential of the office space market in India has been fundamentally strong given the generic pace of growth of the economy and the demand.

"Thus, in the mid-term to long term basis investment in the asset class is expected to be positive. This may therefore be a good opportunity for government to monetise the rent yielding office assets of PSUs," he added.