Private equity (PE) investment in real estate remained stable in the last fiscal year at $4.2 billion, of which more than 75 percent of the contribution came from foreign investors, according to a report by real estate consultant ANAROCK.
The ANAROCK Capital FLUX FY23 report said that domestic investors' contribution stood at 22 percent.
The report noted that a significant number of large real estate platform deals were announced in FY23.
Platform deals worth $4.5 billion were announced across real estate asset classes.
Office assets attracted 40 percent of the investments, while the Delhi-NCR market received 32 percent of the total.
The top 10 deals accounted for 69 percent of the total value of PE investments in FY23, largely matching the 67 percent in FY22.
“Commercial real estate and Industrial & Logistics attracted Pan India platforms with larger deal values of over $500 million, while the residential sector attracted smaller ticket platform deals of between $50 million and $ 125 million, and these were largely regional in nature," said Shobhit Agarwal, managing director and chief operating officer of ANAROCK Capital.
Capital movement
PE inflows stood at $4.2 billion in 2021-22, $7.2 billion in 2020-21, $6.3 billion in 2019-20, and $5.3 billion in 2018-19, the report showed.
Domestic investors were significantly more active in FY23, with investment value increasing by 50 percent in FY23 ($0.9 billion) over FY22 ($0.6 billion).
Inflows from foreign investors declined 7 percent to $3.2 billion in FY23, from $3.4 billion in FY22.
Consequently, the share of domestic PE investors increased to 22 percent in FY23 from 14 percent in FY22.
However, the report pointed out that the average ticket size declined from $86 million in FY22 to $72 million in FY23 due to increased activity in residential real estate, where deal sizes tend to be smaller.
Investment locations
NCR markets were a key attraction for PE players, with 32 percent of total PE inflows in FY23, up from 18 percent in FY22.
Chennai's share increased to 8 percent from 1 percent.
NCR, Chennai, Bengaluru and Hyderabad witnessed increased activity levels in FY23, while MMR (Mumbai Metropolitan Region), multi-city deals and other cities witnessed lower activity levels than in FY22.
Equity and debt
According to the report, equity investment was preferred by PE investors with a healthy share of 67 percent in FY23, but down from 80 percent in the previous year.
However, increased activity in the residential segment is reflected in a higher share of debt at 33 percent in FY23 compared to 20 percent in FY22.
Investment classes
In asset class-wise funding, the office and residential segments continued to dominate PE activity in FY23 with 40 percent and 29 percent share, respectively. Mixed-used development attracted 10 percent of the inflow, while retail real estate was only 2 percent.
Industrial & logistics and data centres together got 6 percent of PE investments in FY23, down from 23 percent in FY22.
Most big-ticket platform deals were in rent-generating assets (offices & warehouses) for pan-India developments, while smaller-ticket items were largely for residential developments in southern cities.
"The IT sector, which accounted for the majority of office occupancy, experienced uncertainty due to global headwinds, which had an impact on their expansion plans. The office landlords' uncertainty about near-term demand was accentuated by the need to control costs and an evolving hybrid workplace," the report added.
This sector continued its robust performance despite concerns of a demand slowdown due to rate hikes. Sales and new launches continued to improve and developers instituted modest price hikes to cover cost inflation, the report said.
In terms of data centres, the report said, "FY23 witnessed major direct investments by hyper-scalers as India is expected to be a large data consumption and generation market in the next decade, making it strategically important in global operators’ Asia-Pacific (APAC) strategy."
The APAC market includes East Asia, South Asia, Southeast Asia, and Oceania, along with 20 countries, including China, India, and Indonesia.
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