Private equity investment in commercial and residential real estate - No contest
In PE investment, due to high demand by the organised IT/ITeS and BFSI sectors, the commercial real estate has scored in a big way over the residential segment.
Private Equity or PE investment has started to come in Indian real estate in a big way again. However, due to high demand by the organised IT/ITeS and BFSI sectors, the commercial real estate has scored in a big way over the residential real estate segment. Also, commercial real estate is driven by leasing because this is a far more beneficial model for developers than selling them. High rental yields do not imply high sale value, because the demand for leased office spaces is much higher than for outright ownership of the same properties.
Speaking on the PE inflow and the commercial versus residential sectors attracting them to what extent Anuj Puri, Chairman – ANAROCK Property Consultants said, "If we analyse PE trends over the last few years, the commercial segment saw total PE inflows of nearly $7.4 bn between 2015 and 2018. In the same period, the residential sector drew just $2.9 bn. This clearly reflects the interest of PE players – both global and domestic." Puri went on to add that the major differences between commercial and residential real estate in terms of performance – and indeed as investment asset classes - are quite apparent. Certainly, private equity investors are quite certain of which segment they are more comfortable within the current Indian market scenario.
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Standing in sync with ANAROCK views Rakesh Yadav, CMD, Antriksh India said, "2019 will continue to see commercial real estate supply gain momentum on the back of vastly increased interest from PE players who are actively pumping in funds into this segment. As per the data available in the real estate domain, the commercial segment saw a total PE inflow of nearly $2.8 bn in 2018, up from $2.20 bn in 2017." Elaborating upon the reason for commercial property scoring over the residential real estate properties when it comes to attracting the PE investment Yadav of Antriksh India said that largely driven by IT/ITeS and BFSI sectors, the commercial real estate segment has been quite transparent and predictable – the primary criteria for foreign or PE investors’ confidence.
So, in coming times residential revival completely depends upon the return of investor's interest which is missing in the current market scenario.