How coronavirus pandemic hit investments in real estate sector

The COVID-19 pandemic has affected almost all businesses without exception, as most major economies have had to adopt a national lockdown to tackle the crisis. Indian real estate witnessed 93 per cent drop in private equity investments, in YTD CY'20.

Story: Shivani Sharma
Design: Pragati Srivastava

While the COVID-19 induced lockdown in India started towards the end of Q1 2020 (March 25th onwards), investors expected a similar scenario to play out in India and preferred to go on a wait-and-watch mode.

In 2020 (YTD), the investor activity dropped sharply with only 5 deals getting concluded, adding up to a meagre USD 238 million and dropping by 93 per cent YoY compared to USD 3.4 billion during same time period last year.

The investments in 2020 witnessed a 91 per cent YoY drop compared to USD 469 million during same time period last year. During YTD 2020, there was only one PE investment in the residential sector worth USD 40 million.

The residential sector has been plagued by the above set of challenges for several years now, and COVID-19 pandemic will act as another nail in the coffin. Number of deals declined to 1 in 2020 (till 31 may 2020).

After rising over 4 consecutive years, the PE investments in office assets declined in 2019. This decline was on account of the dearth of mature office assets. The lack of mature assets is forcing investors to look at opportunities in under-construction assets and greenfield developments which garnered 10 per cent and 13 per cent of the investments respectively.

The situation took an adverse turn in the first 5 months of 2020 with only 2 deals concluding, amounting to USD 141 million. The investments reported a drop of 81 per cent YoY compared to USD 757 million invested during the same time period last year.

In 2020 (YTD) the investment volumes declined on account of the COVID-19 induced lock down and the slowdown in the Indian economy. The investments worth USD 57 million during the first 5 months of 2020 are negligible compared to the investment of USD 1.5 billion during the same time period last year.

The COVID-19 induced lockdown has slowed the leasing activity in warehousing segments. However, new trends have emerged which can give a significant fillip to the demand for warehousing space and make it attractive for investors.