According to a report by Knight Frank India, the real estate sector in India witnessed a decrease in private equity investments during the first half of the year, as investors exercised caution in light of global economic difficulties.
Knight Frank India's latest report titled "Trends in Private Equity Investment in India-H1 2023" reveals that the real estate sector in India received $2.6 billion in private equity investments during the first half of 2023. This amount was distributed across various segments, including office spaces, warehousing, and residential properties. However, it marks a decline of 20% compared to the investments made in the first half of 2022.
The report suggests that the shift in investment strategies and the cautious approach taken by private equity investors can be attributed to this distribution of investments across different segments.
Within the private equity investments made in India's real estate sector during the first half of 2023, the office segment emerged as the dominant recipient, comprising 68% of the total share. Warehousing accounted for 21% of the investments, while residential properties constituted the remaining 11%.
The strong performance and resilience of investable-grade office assets played a significant role in the office segment's dominant position. During H1 2023, this segment experienced a remarkable year-on-year growth of 24%. A notable factor contributing to this growth was a substantial deal valued at $1.4 billion between GIC and Brookfield India Real Estate Investment Trust.
According to the report, despite the influence of global concerns on investments, the moderation in growth has been relatively limited. It further states that a rebound is anticipated in the second half of 2023.
Shishir Baijal, the Chairman and Managing Director at Knight Frank, attributed the decline in investment volume in the past year to global economic challenges and the resulting adjustments in fiscal and monetary policy measures by major economies. He emphasized that these factors have prompted investors to reassess their strategies, particularly in the short term.
Among the regional distribution of investments, Mumbai emerged as the frontrunner, receiving the highest share of 48% of the total investments. The National Capital Region (NCR) secured the second position with 32% of the investments, followed by Bengaluru at 13%. It is noteworthy that approximately 75% of the investments in H1 2023 originated from Asian countries, which marks a decrease compared to the 86% contributed by Canada and the U.S. in H1 2022.
According to the report, the increased capital cost and mounting concerns about a potential recession have dampened investment activity in certain countries. In the first half of 2023, more than 80% of the total investments were directed toward ready assets, highlighting the cautious approach adopted by investors.
Knight Frank's forecasting model, which considers various factors such as government investment, currency fluctuation, inflation, interest rates, and office supply, predicts a year-on-year growth rate of 5.3% for private equity investments in India in 2023. The forecasted projection suggests that these investments are expected to reach a cumulative value of $5.6 billion, based on the model's analysis.
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