Why Are Private Equity Funds Targeting Alternative Assets to Strengthen Indian Real Estate Portfolio?

With returns on some conventional categories in Indian real estate drying up, numerous investors are investing in a wide range of alternative assets in the Indian real estate market.

In one sense, this makes a great deal of logic and could pave the way for many alternative categories in Indian real estate that have been struggling to gain prominence.

Foreign and domestic private equity funds are diversifying their Indian real estate holdings by investing in alternative assets, including data centres, global capabilities centres, proptech, life sciences, and co-living.

Funds such as Keppel, CPPIB, Brookfield, Kotak Realty Fund, HDFC Capital, Hillhouse Capital, and Symphony Investment Holdings are allocating capital to monetise on the growing demand for these asset classes.

As per reports - the alternative investment segment in Indian real estate saw a quadrupling of deployment in the first quarter of 2023, with almost USD 160 million invested, and allocation is expected to increase throughout 2023.

As per industry reports, businesses are modifying their plans and investors are refining their strategies to select markets and assets that offer high returns in 2023.

While the office sector is undergoing changes, there are ample opportunities in sectors such as residential, industrial, and alternative assets that are anticipated to attract the attention of stakeholders. 

In uncertain market conditions, it is anticipated that portfolio diversification will strengthen the growth and resilience of many funds. 

Drawing Big Money:

Recent notable transactions in the segment include Kotak Realty Fund's $133.6 million investment in Investment Holdings' $24.6 million investment in Isprava and Tablespace, and flexible office operator Tablespace's $300 million investment from Hillhouse Capital. 

The HDFC Capital Affordable Real Estate Fund 3 (H-CARE 3) invests not only in affordable housing, but also in construction technology, fintech, and sustainable technology companies.

This segment is supported by the company's H@rt programme, which mentors, associates with, and invests in pertinent companies. It has invested in 15 real estate-focused prop-tech companies, including Loyalie, Reloy, and Satsure.

There is a great deal of global and domestic interest in the Indian Proptech segment, as real estate technology is the need of the hour and cuts across all the verticals in the sector, including construction, CRM, and fintech.

JV Ventures, a fund specialising in social infrastructure assets within education, life sciences, healthcare, and purpose-built housing (including worker housing and student housing), intends to increase its capital commitment in this sector.