With the value share, CRE dominates PE deals in FY24 – ANAROCK Capital

With the value share, CRE dominates PE deals in FY24 – ANAROCK Capital

Mumbai, 16th April 2024: The ANAROCK Capital FLUX report for FY2024 finds that the aggregate value of private equity deals in Indian real estate has declined steadily over the past 5 years – from USD 5.1 Bn in FY20 to USD 3.7 Bn in FY24.

Amount (USD Mn)

FY20

5,138

FY21

6,377

FY22

4,236

FY23

4,358

FY24

3,674

 

“The decline in PE investments in Indian real estate has been due to lower activity by foreign investors, due to global macro-economic factors and geopolitical instability,” says Shobhit Agarwal, MD & CEO – ANAROCK Capital. ”The share of foreign capital in total investments declined to 65% in FY24, against 78% in FY20. Correspondingly, investments by domestic investors have increased to 29% of the total capital inflows into Indian real estate in FY24, as compared to merely 8% in FY20.”

 

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Top 10 PE Deals in FY24

Top 5 Equity Deals

 

Investors Investee Company

Amount (INR Cr)

Amount (USD Mn)

GIC + Brookfield REIT Brookfield

11,596

1,400

CPPIB RMZ

2,650

325

Kotak – ADIA Prestige Estates

2,001

240

Edelweiss Alternative Funds MFAR

1,475

178

Morgan Stanley Prakhhyat Group

700

85

 

Top 5 Debt Deals

 

Investors Company

Amount (INR Cr)

Amount (USD Mn)

Varde Phoenix Group

750

91

HDFC Capital CCI Projects

560

68

PAG Kalpataru

525

63

PAG M3M India

400

48

Edelweiss Special Opportunity Fund Adarsh Developers

350

42

 

The share of the top 10 deals has increased primarily due to the USD 1.4 Bn GIC-Brookfield deal (approx..40% of the overall deal value for FY24), reported at the beginning of FY24.

 

Share of top 10 deals – FY23: 54%, FY24: 72.5%

 

No. of Deals & Average Ticket Size


While the number of deals in FY24 is largely constant, the aggregate deal value has reduced due to a sharply lower average deal size. The average ticket sizes have reduced by 30% – to USD 75 Mn in FY24 from USD 107 Mn in FY20.

 

No. of deals

Average Deal Size (USD Mn)

FY20

48

107.0

FY21

43

148.3

FY22

54

78.4

FY23

55

79.2

FY24

49

75.0

 

Movement of Capital Inflow

 

Multi-city transactions clearly stole the limelight during FY24, with the GIC-Brookfield transaction and the fund raised by Prestige Estates. NCR witnessed a relatively muted year, while MMR continued to dominate city-specific deal tables.

 

 

FY23

FY24

NCR

30%

9%

MMR

13%

25%

Bengaluru

16%

8%

Chennai

7%

1%

Hyderabad

4%

7%

Pune

2%

1%

Multiple

16%

49%

Others

11%

0%

 

Equity vs Debt Funding

 

PE investors prefer equity investments, as evidenced by the fact that the share of equity deals remains healthy and at par with the average of ~75% in the past 5 years.

 

Debt

Equity

FY20

26%

74%

FY21

11%

88%

FY22

20%

78%

FY23

32%

66%

FY24

24%

73%

 

Asset Class-wise Funding

 

The commercial offices segment dominated PE transactions in FY24 with a 57value share. This was largely due to the GIC-Brookfield deal, which accounted for approx.40% of total transaction value in FY24.

 

FY23

FY24

Offices

38%

57%

Residential

28%

28%

Industrial & Logistics

6%

10%

Data Centre

3%

2%

Land

4%

2%

Portfolio / Mixed use / Entity

10%

2%

Others

11%

0%

 

“While there has been a consistent share of PE investments in residential real estate at 28% YoY, there is a yearly decline of 17% in the same by value,” says Shobhit Agarwal. “This is due to a very high base in FY23, when investments had doubled over the previous years.”

 

         (in USD Bn)

FY20

FY21

FY22

FY23

FY24

Residential

0.6

0.7

0.6

1.2

1.0

 

Domestic vs Foreign Funding

 

In the overall investments during FY24, foreign capital saw its share drop to 65% in FY24 while the share of domestic investors rose to 29% (against 8% in FY20).

 

Foreign

Domestic

FY20

78%

8%

FY21

95%

5%

FY22

83%

14%

FY23

76%

24%

FY24

65%

29%

 

For all charts:

Numbers rounded off to the nearest decimal; All transactions in USD ($) unless otherwise stated

FY = Financial Year (1st April – 31st March)

Source: ANAROCK Capital Market Research

 

FY24: Key Highlights & Events

  • Residential

 “Residential real estate witnessed another year of a strong upcycle due to increased project launches, sales volumes, and price appreciation. Demand for affordable housing reduced, and that for larger homes increased,” says Aashiesh Agarwaal, SVP – Research & Investment Advisory, ANAROCK Capital. “The luxury homes market continues to post a robust performance. Interestingly, demand for under construction properties rose sharply during the year. The improved sentiment has also encouraged large investor to increase their participation in the market. However, the aggregate investment in the sector is lower than in FY23, due to some larger-than-average transactions during the last year.”

 

  • Commercial Office

 

Commercial real estate deals remained very thin on the ground, due to multiple factors such as the delayed notification of SEZ amendments, elevated interest rates, and global uncertainties. However, given strong demand fundamentals of commercial real estate, driven by leading IT companies’ determined push to return to office, increased traction of co-working spaces, a favorable capex cycle, the amendment of SEZ laws, and expectations of lower interests, commercial office real estate activity should strengthen over the coming quarters.

 

  • Retail

 

The retail segment of Indian real estate is thriving due to economic growth. Key names in the nation’s mall development arena, including DLF, Lakeshore, Inorbit, Nexus and Phoenix, are aggressively pursuing expansion. This surge in capital allocations aligns with the expansion strategies of leading retailers, resulting in a substantial uptick in store numbers. Rentals are expected to firm up, since economic buoyancy and robust consumer sentiment has led to healthy demand and trading densities for retail assets.

 

  • Industrial & Logistics

 

The industrial & logistics segment continues to hold promise for investors, with strong growth prospects on the back of robust consumption and expectations of manufacturing-led growth. While transactions in this segment were thin in FY24, they are expected to revive in FY25.

 

  • SM REITs

 

Towards the end of FY24, SEBI notified amendments to REIT regulations, paving the way for Small and Medium Real Estate Investment Trusts (SM REITs). This move aims to regulate fractional ownership of properties. Under these regulations, the minimum subscription size is INR 10 lakhs, the minimum number of investors is 200, and asset size can range between INR 50 Cr to INR 500 Cr.

 

  • Stressed Assets

 

While this segment has seen the emergence of a class of investors specializing in stressed asset resolutions, lenders are increasingly likely to settle with the promoters to avoid litigations.

 

  • AIFs

 

In December 2023, RBI issued a circular barring lender from investing in AIFs where the AIFs had lent downstream to companies wherein the lender had exposures. For existing investments, lenders were required to liquidate within 30 days or to set aside higher provisioning (100%) for their investments in such AIFs.

 

However, the end of March 2024 brought a breather – lenders were allowed to invest AIFs which has invested in a debtor company of the former. The RBI also gave relief on provisioning norms – provisioning would be required only to the extent of the lender’s investment in the AIF scheme, which is further invested by the fund in the debtor company.

 

Rabindra

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