Foreign PE Investment in Real Estate – Retrospect and Outlook 2020

Shobhit Agarwal, MD & CEO – ANAROCK Capital

•  In 10 years (2005-2014), foreign PE investments in Indian real estate were USD 9 bn; last 5 years alone saw 84% surge
• Singapore-based funds kick-started the Indian real estate investment spree, quickly followed by funds from the US and Europe
• Post-2008, most foreign funds withdrew from India due to limited exit opportunities; in 6 years (2009-2014) only USD 3.4 bn came into Indian real estate – most in 2014
• Momentum restarted from 2014; 2015-2019 saw USD 16.6 bn of foreign PE investments

Since 2005, when restrictions on FDI in real estate were lifted, the Indian realty sector has received more than USD 25 bn worth of equity investments from foreign investors. While the pre-Modi era witnessed sizable foreign investments, a major portion of these came post-2014.

The period between 2005 and 2014 saw investments of USD 9 bn, while the past five years saw a remarkable 84% increase – that too in half the number of years. Most post-2014 investments were in income-yielding assets – largely office, followed by retail projects.

These investments came in from all over the world, but the investing regions have not been constant over the years. Investment in Indian real estate started from Singapore-based funds, quickly followed by funds from the US and Europe. Between 2005 and 2008, Indian real estate received investments worth USD 5.7 bn.

Considerable activity here came from capital providers like JP Morgan, Morgan Stanley, Goldman Sachs, Lehman Brothers, Wachovia, Walton Street Capital, etc., and Singapore-based developer capital providers like Ascendas, Xander, Mapletree and Capitaland.

However, post-2008, most funds withdrew from India because there were limited exit opportunities. In the ensuing 6 years, only USD 3.4 bn worth of investments came into Indian real estate – most of them in 2014.

In this period, Blackstone strengthened its position with multiple high-ticket investments across Tier 1 cities. Brookfield also headlined with USD 330 mn investments in Unitech Corporate Parks (UCP). This period also saw considerable consolidation from Singapore-based funds like GIC, Ascendas and Xander.

The momentum restarted from 2014 onward. In the next five years, Indian real estate received USD 16.6 bn worth of foreign investments. In this period, investor focus remained largely on big-ticket income-yielding commercial and retail assets – 72% in aggregate. This period also saw the entry of significant Canadian pension funds into Indian real estate, either directly or through platform deals with Indian counterpart.

While Singapore-based funds led by GIC remained very active in this period, US-based funds led by Blackstone continued their love affair with India real estate and invested more than USD 5.7 bn in the same period.

Outlook 2020

In 2020, we expect the funding focus to remain on Grade A income-generating assets along with last-mile funding opportunities in residential projects. A few Japanese investors/corporates have been evaluating Indian real estate investment options and we can expect them to get into gear in 2020, along with pension and insurance funds.

These funds are inherently patient and come with longer investment tenures. As such, they will play a significant role in providing the long-term solutions Indian developers now need. In fact, 2020 promises to be an action-packed year for Indian real estate funding.