PE investments in Indian real estate likely to surpass 2021 peak

After a lull in 2023, industry observers expect overseas private equity investments in real estate to recover as monetary policy loosens.

Private equity (PE) investors injected nearly $3 billion into Indian real estate in the first half of 2024, a 15 percent increase over the year-ago period, Knight Frank has said in a report.

With a robust start to the year, private equity investments in the sector are on track to exceed the $6.2 billion recorded in 2021, Harry Rogers, Knight Frank India's director of international capital markets, told Moneycontrol.

"A number of high-profile deals are under offer, particularly in the office space. With the availability of Grade-A office space being low, private equity investments in Indian real estate may cross 2021 levels,” he said.

More than half of the January-June investment was driven by $1.5-billion deal in Mumbai by the Abu Dhabi Investment Authority and Kohlberg Kravis Roberts & Co (KKR) into Reliance Retail Ventures' warehousing assets, the real estate consultancy said.

According to Knight Frank, the $3-billion investment included $854 million in residential real estate, significantly higher than the $277 million in 2023.

Residential investments also surpassed those in the office sector, which received $579 million, indicating a shift from the typical trend of commercial real estate dominance.

"We expect more deal activity towards the end of the year as parties work to determine the right value for assets," Rogers said.

Should his prediction come true, it would mark a significant year-on-year increase, following the 2023 low of $3.2 billion due to global private equity investors conserving cash in a tight monetary policy environment.

Rogers cautioned that while global central banks maintain high key interest rates, the cost of capital remains elevated, potentially causing some investments to be deferred to subsequent years. However, with dovish commentary from the US Federal Reserve and UK inflation holding at 2 percent for June, the cost of capital might decrease in 2025.

The report also highlighted alternative investment funds (AIFs) in India as a significant funding source for the real estate sector.

AIFs have raised $5.3 billion, with about $2 billion still available for deployment in future investments.

Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.