Private Equity investments in real estate drop 93% in 5 months

The private equity (PE) investments in the real estate sector have crashed by 93% to $238 million (Rs 1,799 crore) during the first five months of 2020 compared to $3.3 billion (Rs 24,941 crore) in the corresponding period last year.

The real estate sector had attracted $6.8 billion (Rs 51,400 crore) in 2019, a decline of 23% year on year (YoY) as against $8.8 billion (Rs 65,512 crore) seen in 2018, a record till date, according to data released by global property consultant Knight Frank. The decline was largely on account of lower interest in residential and office markets.

“The numbers are strictly not comparable during the five-month period as the last two and a half months have seen lockdown of the economy,” Rajani Sinha, Chief Economist, Knight Frank India said. While the residential sector has been passing through tumultuous times, the dearth of mature assets has led to a decline in investments in the office market, she said while releasing a report “Investments in Real Estate” through a webinar on Wednesday.

So far, in 2020, the investor activity dropped sharply with only five deals getting concluded, adding up to a meagre $238 million and dropping by 93% year on year. The drop can be attributed to both the COVID-19 pandemic as well as the slowdown of the economy in 2019. The year has also seen 80% drop in the number of deals concluded in the first five months when compared to the same period last year.

Due to low investor appetite to undertake development risk, the share of residential in the overall investment pie has consistently shrunk, from 60% in 2011 to 57% in 2015 to 11% in 2019. Office, Retail and Warehousing have witnessed significant growth in investor interest and activity in the same period.

“The decline in PE investments in real estate was visible in 2019 when it fell by 23% YoY to $6.8 billion. We are operating in uncertain times. Having enforced one of the most stringent lockdown measures globally, 2020 would be a challenging year for Indian businesses. The recall of undeployed capital by sponsors, the emergence of attractive opportunities globally, increase in risk premiums, contraction in Indian GDP and COVID-19 related uncertainties would cast its shadow on investments and we expect investor activity to be subdued in 2020,” Shishir Baijal, Chairman and Managing Director, Knight Frank India said. During the first five months of the year between January and May, around 2.9 million sq. feet of office space was transacted. In 2020, there has been only one private equity investment in the residential sector worth $40 million. Sharp slowdown in the domestic economy and the real estate sector will keep the investors cautious.