PE inflows in Indian real estate up by 19% in financial year 2021

V Nagarajan

In a move that raised many eyebrows, Indian real estate recorded its highest-ever PE investments since FY16. Despite COVID-19 pandemic impacting all sectors, more than $6.27 billion were pumped into the real estate sector in financial year 2021 (FY21), as against $5.8 billion in FY20, up by 19 per cent in one year, according to Anarock survey.

Unlike earlier, FY21 saw private equity investors focus majorly on portfolio deals across multiple cities and assets, rather on specific projects or cities. Such portfolio deals constituted 73 per cent of the overall share, with approximately US$ 4,583 million invested via portfolio deals in multiple cities.

The average ticket size of PE deals rose by 62 per cent in the fiscal year - from US$ 110 million in FY20 to US$ 178 million in FY21. Both structured debt and equity witnessed strong growth during the year at 84 per cent and 15 per cent respectively. Structured debt was largely towards portfolio deals instead of project-level assets.

Though FY21 was an unprecedented year due to the pandemic, foreign PE funds showed much optimism for India. As much as 93 per cent of the total PE investments pumped into Indian real estate was by foreign investors. In actual terms, investments by foreign PE funds almost doubled from $3 billion to $5.8 billion in FY21. In contrast, domestic PE funds invested merely $300 million compared to $420 million in FY20.

“Foreign funds are evidently very upbeat about India. High-grade rental-generating assets have attracted foreign investors in a big way during the year. Moreover, India has a strong underlying demand for office space with quality workforce and average rentals available at less than a dollar per sq. ft. per month,” said Shobit Agarwal, MD & CEO, Anarock Capital.

During the year, PE funds like Blackstone and Brookfield have added a lot of assets to their existing portfolios, while others have takeover loan portfolios of NBFCs.

Among other significant trends, the share of asset classes like commercial, retail and hotel has been very good. While the asset class-wise bifurcation shows lower percentage, when considered along with portfolio deals (where bifurcation is not available), the share of these assets classes is strong.

Nearly 66 per cent of the total inflows ($6.27 billion) in FY21 was across portfolio deals in multiple asset classes. In contrast, in FY20, out of the total $5.28 billion total inflows, just 8 per cent of the total comprised of portfolio deals.

According to Savills India, despite the remote-working culture, commercial office assets remained the frontrunner during Q1 2021, garnering more than half (58 per cent) share of the investment pie. All the quarterly investment came from foreign institutional investors and was mostly concentrated in the two southern cities of Bengaluru and Hyderabad.

The increased demand for warehousing facilities, especially from e-commerce and third-party logistics players, has steered private equity institutional investments into the sector. During Q1 2020, investors such as Blackstone and Ascendas Firstspace formed platforms to develop and invest to the tune of Rs 53 billion in industrial facilities in the cities of Pune, Bengaluru, Hyderabad and Chennai.

I have entered into a JDA with a developer and supposed to receive proportionate share in the built up area of the property. Due to current market scenario and cash crunch, the JDA has failed now. Will tax liability accrue in such a case? Please clarify. Prakash Dhorda, Sharjah.

In a case where the developer undertakes to dispose of a few properties to be allotted to you, then capital gain liability would arise only in the year of receipt of payment from the developer in respect of sale of such properties. Here also the capital gain tax liability will have to be calculated proportionately. In your case where the JDA transaction itself has failed, there is no capital gain tax liability.

My brother who is also an NRI wants to gift his share of the ancestral property situated in Delhi. Which option would be ideal i.e. gift or Will? Please advise us. Pankaj Chandnani, Dubai.

It is assumed that you and your brother are the owners of the property. If he bequeaths under a Will, the bequest shall take effect only on his demise and it may get challenged by his legal heirs.

If it is transferred under a gift deed, it has to be duly stamped and registered with the sub-registrar of assurances and signed by two witnesses. It is advisable to opt for gifting of the property by a registered deed.