Covid-19: U.S. PE inflows into Indian realty may fall

The U.S.-based private equity (PE) firms, which have been extremely bullish on Indian real estate for the past four years, may tighten their purse strings amid the Coronavirus (Covid-19) pandemic. Consequently, while investments in the real state sector may slow down, some of the home-grown firms may be constrained to raise money at lower valuations, forecasts Anarock Consultants.

The U.S. has so far recorded close to 336,000 confirmed cases and 9,620 deaths due to the Coronavirus outbreak.

According to Anarock Consultants, the U.S.-based PE firms have deployed roughly $5.7 billion in India between 2015 and 2019. Last year, such firms accounted for roughly 36% of the $5-billion PE inflow in Indian real estate. In comparison, the U.S. firms accounted for about 21% of the PE investments in the sector in 2016.

Blackstone, Warburg Pincus, and Golman Sachs, among others, have been particularly bullish on India of late.

“India has been a major draw for the U.S.-based PE players over the last few years. In 2019 alone, the U.S.-based firms comprised 36% [of the total inflow] and pumped in $1.8 billion out of the total $5-billion PE inflow in Indian realty. However, considering the rising pandemic fallout in the U.S., there is a high possibility that inflows will drop significantly in 2020, thus impacting overall inflows into the country,” said Shobhit Agarwal, managing director and chief executive officer at Anarock Capital, in a statement.

Commercial real estate has been the biggest benefactor of the U.S. firms’ investment spree, accounting for $3.5 billion of the overall $5.7 billion deployments. Retail real estate attracted about $1 billion, followed by residential real estate, which accounted for $500 million.

Agarwal estimates commercial real estate could be particularly impacted. Net office space absorption across the top seven cities could drop by 13%-30% in 2020 from last year. “This is because most multi-nationals and domestic businesses will re-strategise their expansion plans and optimise operational costs in the wake of the Covid-19 pandemic. All these factors will inevitably impact the Indian investment plans of the U.S. private equity majors as well,” he added.

The Indian real estate segment has been particularly hit by the NBFC (non-banking financial company) crisis. While some NBFCs have halted disbursal of loans sanctioned earlier, others want their money back. According to various research reports, the exposure of NBFCs to the Indian real estate sector stands at about ₹4 lakh crore, Fortune India reported in its February issue.