PE funding in real estate drops by 62%

Private equity (PE) investments into India’s real estate sector registered a 62% drop in the January to March period of the ongoing calendar as compared to the same period a year ago, on the back of a slowing economy and the Covid-19 outbreak. According to data shared by Colliers International, a leading real estate professional services and investment management company, $222 million in PE funding flowed into the real estate sector, prompting the firm to revise its full-year investment outlook.

"We have lowered our projection of PE inflows in real estate to about $3.5 billion in 2020 owing to slow decision-making by investors,” said Megha Maan, senior associate director, research at Colliers International in India.“The outbreak of Covid-19 and slower economic growth among other factors have altered the investment outlook for 2020.”

The Covid-19 pandemic has clearly slowed decision‐making on the part of institutional investors, which could constrain capital deployment in India. However, Colliers International noted the emergence of trends in 2020 that may present several opportunities for investors that are likely to prove favourable in the long term.

“We recommend investors capitalise on the situation and focus on commercial office assets as India’s competitiveness remains. Further, lower interest rate regime is likely to compress cap rates over long term,” said Piyush Gupta, managing director, capital markets (India) at Colliers International.

Maan contends that the changing market situation presents opportunities in the residential segment, income-generating commercial office assets, and opportunistic assets, especially in the hospitality space.

Over the last 15 months (2019 to Q1,2020), $754 million in PE funding has gone into the hospitality space; most of it involved distressed asset trade transactions. This, according to Coillers International, is nearly eight times the hospitality sector investment volume recorded in the preceding five quarters.

These transactions have been supported by increasing investor confidence in the Insolvency and Bankruptcy Code, 2016 (IBC). The IBC enables investors to purchase assets at an attractive valuation, without saddling them with lingering debt.

“The opportunity lies in logistics and data centres as well as core commercial office assets. Distressed assets, especially in the hospitality space, are also attractive. The opportunistic asset trade transactions are expected to gain pace in the next two-three years with the current economic slowdown,” said Sankey Prasad, managing director and chairman at Colliers International India.