Corona results in 93% drop in PE investment in India

New Delhi: The corona pandemic has taken a heavy toll in the Indian real estate market with 93 percent drop in private equity (PE) investment which fell to just USD 238 million till 31 May 2020 as against the same period of 2019.

The number of PE deals effected in the Indian real estate market fell by 80 percent to just 5 transactions till 31 May 2020 as compared to the same period (Jan-31 May) 2019, according to a report by Knight Frank India.

Till 31 May, only two deals totaling USD 141 million have been concluded in 2020 with only 2.9 million sq. ft. of office space having been transacted. 

In the near future, the, the corona pandemic induced recession will result in severe drop in asset valuations internationally. This will provide attractive opportunities in the developed countries for PE funds. The PE Investors will opt for opportunities in the developed countries since there will be no currency and other emerging market risks. 

The risk premiums in the Indian office assets will go up because of to the pandemic.

We are operating in uncertain times. Having enforced stringent lockdown measures, 2020 would be a challenging year for Indian businesses. The recall of un-deployed capital by sponsors, emergence of attractive opportunities globally, increase in risk premiums, contraction in Indian GDP and COVID-19 related uncertainties would cast its shadow on investor sentiments, said Shishir Baijal, Chairman & Managing Director, Knight Frank India.

Even the retail realty segment scenario is not very encouraging and the prospects appear bleak in the cm9ng 12 months. The PE investors are now seeing much higher risk with retail real estate as against office realty because of accounting for longer time-periods of no-rentals or lower-rentals in their financial calculations in the short-term future on account of revenue share arrangements. Retail real estate segment is also seen to be amongst the last to recover.

The poorer investor appetite and the G-sec yields not going down as much as repo-rate cuts makes investment in this realty segment a poorer choice. 

The warehousing real estate segment has seen only two deals in 2020 so far, reflecting an investment volume fall in the warehousing segment. 

But the corona pandemic effect on warehousing segment will be comparatively less as compared to other real estate segments. Warehousing realty segment will be supported by the shift in supply chain management system and renewed jump in e-commerce business. The rising share of e-commerce in the country will nullify to some extent the impact of poorer demand from the other segments.

In 2020 so far, only one PE deal in the residential sector which was about USD40 million. The corona pandemic will act as another nail in the coffin. The sales of houses was already very slow in India before corona pandemic and the sales is likely to dwindle further in 2020. The real estate market in India is also witnessing significant consolidation. The recovery in residential real estate segment will get further delayed.