PE flow in residential realty falls by 60%

Commercial jumps 26%

The private-equity in India’s commercial real-estate jumped by 27% in 2018, while in residential market it declined by a whopping 60%.

According to the real estate advisory ANAROCK, the PE investment into India’s residential real-estate stood at mere $266 million in 2018, a drop of 60.2% from $668 million flow in 2017. On the other hand, the PE flows into commercial real estate jumped by 27.3% to $2.8 billion in 2018, from $2.2 billion in 2017.

The fall in the PE flow has been plagued since some years now: it declined by 61% in 2016, saw a mere jump of 16% in 2017, and declines again 60% in 2018. “The Indian residential sector has been hounded by multiple problems for the last three-four years. These include the issue of stalled/delayed projects, liquidity crunch, and high property values despite weakened demand and slow sales,” Anuj Puri, Chairman, ANAROCK Property Consultants said in a note.

On the other hand, the PE investment in commercial real-estate has been on rise in past three years: in 2016 it grew by an astounding 65.7%, in 2017 it again grew by 46.7%, while in 2018, the growth moderated to 27.3%. According to the analysts, various Government-driven policies including ease of doing business in India are attracting both Indian and global companies, squarely benefiting commercial real estate.

“Big-bang boosters like the start-up revolution and the Make in India and Smart Cities missions have created a very lucrative environment for businesses to work and expand in India,” Puri added.

The disparity in the yields in various segments is also a contributing factor to such a differential trend – compared with the lease yields for office spaces at 12-14% per annum, rental yields for housing are negligible 2.5-3.5% per annum in a best-case scenario.

In the past five years, the commercial segment saw total PE inflows of nearly $7.4 billion between 2015 and 2018. During the same period, the residential sector drew home only of third of it -- $2.9 billion.

However, the things seem to be improving a tad as in Q1 2019, the country's housing sector saw E inflows of $143 million out of the total $1.1 billiion PE investments.