Real estate PE investments drop 26% in FY 2024's first 9 months.

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In the first nine months of the fiscal year 2024, the real estate sector experienced a notable decline of approximately 26% in private equity investments, reflecting a shift in both foreign and domestic investor sentiment. The subdued activity from foreign investors during this period can be attributed to global geopolitical uncertainties and a prevailing high-interest rate environment, as highlighted in ANAROCK Capital's FLUX report for 9M FY24.

The Movement of Capital Inflow showcased a significant rise in multi-city transactions, prominently featuring the Brookfield India Real Estate Investment Trust (REIT) and GIC. Mumbai Metropolitan Region (MMR) emerged as a leader in city-specific transactions, reporting investments totaling $694 million in 9M FY24, a substantial increase from $375 million in the same period of the previous fiscal year.

Equity investments remained the preferred choice for private equity investors, accounting for a substantial 84% share in total funding. Notably, the commercial real estate sector experienced a surge in PE deals during 9M FY24, fueled by a major transaction and a slowdown in residential real estate activity.

Domestic Alternate Investment Funds (AIFs) witnessed reduced activity levels, particularly in their favored asset class – residential real estate debt. The decline in demand for high-cost funds in this category was influenced by strong residential pre-sales and the accommodative stance adopted by state-owned banks, reducing the need for capital from relatively expensive AIFs.

Shobhit Agarwal, MD and CEO of ANAROCK Capital, remarked on the changing dynamics, stating, "Domestic Alternate Investment Funds have seen lower activity levels as their favored asset class – residential real estate debt – witnessed lower demand for high-cost funds. Strong residential pre-sales and an accommodative stance by state-owned banks have led to reduced demand for capital from the more expensive AIFs."

The top 10 private equity deals in 9M FY24 accounted for 87% of the total value of PE investments, reflecting a notable increase from 76% in the corresponding period of the previous fiscal year. The average ticket size for these deals marginally increased to $95 million in 9M FY24 from $91 million in 9M FY23.

One of the significant contributors to the uptick in average ticket size was a large deal involving Brookfield India REIT and Singapore's sovereign wealth fund GIC. Together, they acquired two commercial assets – one in Mumbai and the other in Gurugram, NCR – from Brookfield Asset Management, with an enterprise value of $1.4 billion.

Foreign investments constituted a substantial portion of the total capital inflows into the Indian real estate market, increasing to 86% in 9M FY24 compared to 79% in the same period of the previous fiscal year. In contrast, domestic investments decreased to 14%, amounting to $360 million in 9M FY24, as opposed to $717 million in 9M FY23.

Shobhit Agarwal further emphasized this shift, stating, "Investments by foreign investors have increased to 86% in 9M FY24 as compared to 79% in 9M FY23. Correspondingly, domestic investments decreased to 14% of the total capital inflows into Indian real estate in 9M FY24 - at $360 million, compared to $717 million in 9M FY23."

These developments underscore the evolving landscape of real estate investments in India, influenced by both domestic and international factors. The sector's resilience and adaptability will play a crucial role in navigating the challenges and seizing opportunities as the fiscal year progresses.

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