Businesses will re-strategize expansion plans
The cash-rich US funds could leverage the COVID-19 fallout to optimal advantage as and when they enter Indian shores, hopefully towards second half of 2020, scouting for good bargains and value-pick options on their own terms.
Though this may lead to Indian developers seeing reduced valuations, according to Shobhit Agarwal, MD & CEO – ANAROCK Capital who gave latest investment trend in the Indian real estate sector.
In retrospect, US-based private equity players have pumped nearly US$5.7 billion into Indian real estate between 2015 to 2019, accounting for a nearly 29% overall share.
On a y-o-y basis, PE inflows by US firms increased from a mere US$526 million in 2016 to over US$1.8 billion in 2019. Concurrently, their share has also increased, from 21% to 36% during the same period.
He also cautioned. The US private equity funds, having been substantially active in Indian real estate since 2015, may reconsider their investment plans, leading to a decline in total inflows in 2020 in India.
With US becoming the new epicentre of COVID-19 and thus witnessing one of its worst economic blows, their decisions among others may soon hit the Indian economy.
Other prominent PE players investing in Indian real estate are based out of Singapore, Canada, and UAE, among others.
“India has been a major draw for US-based private equity players over the last few years,” noted Agarwal.
In 2019 alone, US-based firms comprised 36% share and pumped in ~US$1.8 billion out of the total US$5 billion PE inflows in Indian realty.
“However, considering the rising pandemic fallout in the US, there is high possibility that inflows will drop significantly in 2020, thus impacting overall inflows into the country,” believes Agarwal.
Notably, a major chunk of the US-based private equity inflows in India since 2015 focused on the lucrative commercial real estate segment, with Blackstone as the top investor.
Agarwal listed ANAROCK Research data:
• Of the total US$5.7 billion PE funds pumped in between 2015 to 2019, close to US$3.5 billion (61%) targeted commercial real estate
• The retail real estate segment came next, attracting nearly US$1 billion
• Residential real estate drew close to US$500 million, and over US$400 million targeted mixed-use developments
• More than US$300 million were pumped into the logistics and warehousing sectors.
“Current estimates of the COVID-19 impact on Indian commercial real estate indicate net office space absorption across the top 7 cities will plummet by 13-30% in 2020 against preceding year,” said Agarwal.
“This is because most multi-nationals and domestic businesses will re-strategize their expansion plans and optimize operational costs in the wake of the COVID-19 pandemic.
“All these factors will inevitably impact the Indian investment plans of US private equity majors as well,” he said. fiinews.com
