Private Equity Inflow in Realty Sector Fell by 93% to $238 Million in Jan-May due to Slowdown, Covid-19 Disruption

Private equity investments in Indian real estate sector during the first five months of this year plunged by a massive 93 per cent to USD 238 million due to economic slowdown and COVID-19 disruptions, according to property consultant Knight Frank India.

Private equity (PE) investments in real estate sector stood at USD 3.38 billion during the year-ago period.

"The private equity investment activity dropped to USD 238 million, with only 5 deals getting concluded in 2020 (YTD till May 31), a 93 per cent drop in year-on-year comparison," Knight Frank said in its report titled "Investments in Real Estate".

The consultant attributed the sharp drop in the PE investment activity to economic slowdown and the COVID-19 pandemic that impacted investor sentiments.

According to the data, the PE investments in office space fell to USD 141 million during January-May 2020, from USD 1,009 million in the corresponding period last year.

The retail segment did not attract any investment compared to USD 397 million during the period under review.

Warehousing segment got PE investments worth USD 57 million, as against USD 1.5 million a year ago, while the housing sector received the PE inflow of USD 40 million, as against USD 469 million.

Sharp slowdown in the domestic economy and specifically the real estate sector will keep investors cautious, the consultant said.

"Moreover, challenges such as recall of capital by Sovereign Wealth Funds and Pension funds to give bailout in their home countries and the emergence of attractive opportunities in the developed economies on account of drop in valuations due to recession would cast its shadow on the PE investments in Indian real estate in 2020," it added.

In terms of number of deals, the year 2020, has seen 80 per cent drop in the first five months, as compared to the same period last year.

"The decline in PE investments in real estate had started as visible in 2019 when it fell by 23 per cent year-on-year to USD 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," said Shishir Baijal, Chairman & Managing Director, Knight Frank India.

Baijal further noted that "the warehousing segments would be the fastest to recover followed by office. With pay cuts and job losses becoming pervasive, the residential and retail segments would have to chart an arduous journey towards recovery".

Overall, private equity activity in Indian real estate is likely to be subdued in 2020, he said.