Mint Primer: Why PE funds are investing less in real estate

livemint.com:

Private equity (PE) investments in India’s real estate have been falling over the last five years, through a residential boom and recovery in the commercial office segment. While the number of deals has remained constant, the average deal size has shrunk. Mint explains why: The value of PE deals in real estate fell from $5.1 billion in FY20 to $3.7 billion in FY24, says Anarock Capital, the investment banking and advisory arm of Anarock Group.

This is mainly due to lower activity by foreign institutional investors, which account for a large share of the investment pie, because of global economic uncertainty and geo-political instability. India’s real estate market has been an attractive destination for global investors, particularly from the US. However, due to inflationary pressures in the US economy, investors have adopted a more cautious approach and decision-making is slow.

The average deal size has shrunk sharply by 30% from FY20-FY24. This is primarily because big ticket transactions typically happen in the commercial office space in the form of acquisitions, led by foreign investors. Though the office sector continues to attract the largest share of capital due to better returns, followed by residential, the number of large office acquisitions has dropped due to many investors going on a wait-and-watch mode.

Big commercial real estate deals were also low due to the delayed notification of SEZ amendment and some uncertainty over the IT sector, the largest occupiers of office space. Brookfield India REIT and Singapore’s GIC jointly acquired two commercial office properties in Gurugram and Mumbai for$1.4 billion. The commercial offices segment dominated PE transactions in FY24 with a 57% value share.