ANAROCK Capital FLUX Report for FY2024: Analysis of Indian Real Estate PE Deals

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    Introduction

    The ANAROCK Capital FLUX report for FY2024 reveals significant trends and insights into the private equity (PE) landscape in the Indian real estate sector. Over the past five years, there has been a steady decline in the aggregate value of PE deals, indicating a shift in investor preferences and market dynamics.

    Trend Analysis

    The aggregate value of PE deals has declined from USD 5.1 billion in FY20 to USD 3.7 billion in FY24. This decline can be attributed to lower activity by foreign investors, influenced by global macroeconomic factors and geopolitical instability. The share of foreign capital in total investments has decreased from 78% in FY20 to 65% in FY24, while investments by domestic investors have increased from 8% to 29% during the same period.

    Top 10 Deals in FY24

    The top 10 deals in FY24 witnessed a notable increase in share, primarily driven by the USD 1.4 billion GIC-Brookfield deal, which accounted for approximately 40% of the overall deal value for the fiscal year.

    No. of Deals & Average Ticket Size

    While the number of deals remained largely constant, the aggregate deal value decreased due to a lower average deal size. The average ticket sizes reduced by 30% from USD 107 million in FY20 to USD 75 million in FY24.

    Movement of Capital Inflow

    Multi-city transactions, particularly highlighted by the GIC-Brookfield deal and the fund raise by Prestige Estates, dominated the FY24 landscape. Notably, the National Capital Region (NCR) witnessed a decline in share, while Mumbai Metropolitan Region (MMR) continued to dominate city-specific deal tables.

    Equity vs Debt Funding

    PE investors continued to prefer equity investments, with the share of equity deals remaining healthy at approximately 75% over the past five years.

    Asset Class-wise Funding

    Commercial offices emerged as the dominant segment in FY24, accounting for 57% of the total transaction value. This was largely driven by the GIC-Brookfield deal, which contributed approximately 40% of the total transaction value.

    Residential Segment

    While residential real estate witnessed a strong upcycle, there was a decline in investment value by 17% compared to FY23. This can be attributed to exceptionally high investments in FY23, resulting in a challenging base comparison.

    Domestic vs Foreign Funding

    The share of domestic investors increased to 29% in FY24, while foreign capital saw a decline to 65%. This shift indicates a growing confidence among domestic investors in the Indian real estate market.

    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 lenders 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.

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