Real Estate Attracts $2.2 Bn Institutional Funding in H1 2019, 31% Yearly Fall

Shobhit Agarwal, MD & CEO – ANAROCK Capital

• PE & NBFC investments close to USD 2.2 bn in H1 2019 (approx. USD 3.2 bn in H1 2018)
• Commercial real estate had 64% share with USD 1.4 bn inflows
• Private equity alone pumped in USD 2.1 bn in H1 2019 against USD 2.6 bn a year ago
• Inflows from NBFCs saw 73% fall – from USD 520 mn in H1 2018 to USD 140 mn in H1 2019
• MMR saw maximum inflows of USD 530 mn, followed by Pune with nearly USD 250 mn
• Southern cities Bengaluru, Chennai & Hyderabad collectively attracted over USD 610 mn in H1 2019, NCR saw minimal inflows
• PE funds optimistic post elections, infused USD 580 mn in Indian real estate in June itself

A majority government at the Centre is gradually reviving private equity’s confidence in Indian real estate – especially the commercial sector. ANAROCK research indicates that PE players infused USD 580 mn into Indian real estate in the month of June, immediately after Modi 2.0 took charge.

That said, the general elections predictably cast a shadow on funding into Indian real estate. The total inflows into the real estate sector saw a yearly decline of 31% in H1 2019 – from USD 3.2 bn in H1 2018 to nearly USD 2.2 bn in H1 2019. Also, the IL&FS default last year and RBI’s tightening norms for NBFC and HFC lending to real estate had a severe impact, to say the least.

Of the total funding into the sector in H1 2019:

• Private equity inflows accounted for over USD 2.1 bn, while USD 140 mn came in from NBFCs/HFCs
• In H1 2018, PE funding stood at approx. USD 2.6 bn and funding from NBFCs/HFCs saw a 73% decline – from USD 520 mn in H1 2018 to USD 140 mn in H1 2019
• Of the total USD 2.2 bn funding in H1 2019, over 89% was equity funding; only 11% was debt. In H1 2018, equity funding had an 83% share while debt stood at 17%.

Mumbai attracted the maximum (24%) of the overall inflows into the sector amounting to USD 530 million. Pune followed with nearly USD 250 million coming in from institutional investors – an increase of 97% for Mumbai’s immediate neighbor since H1 2018.

H1 2019 Funding – Sector-wise Breakup

• Commercial real estate attracted the lion’s share of investments with 64% amounting to over USD 1.4 bn
• Residential real estate attracted over USD 270 mn
• Retail real estate attracted USD 260 mn
• Logistics & warehousing attracted nearly USD 200 mn

Even while caution prevails over the current market dynamics, the incumbent’s government proactive initiatives across sectors will doubtlessly cause more private equity inflows into the real estate sector. While Indian commercial real estate’s overall attractiveness for institutional funds is now well-established, the residential sector is also likely to become increasingly interesting in the back of the government’s determined push to affordable housing.