Following the people of the UK deciding to exit the European Union, markets have become volatile and the value of the pound has declined sharply. With considerable uncertainly and no real precedent, Asia Pacific real estate investors and corporate occupiers are looking to mitigate risk.
But Brexit may not have a big impact on private equity (PE) fund flow into the Indian realty sector as the UK accounts for just $500 million (about 2%) of the total PE investment from overseas into the Indian realty market, feel consultants at international realty firm Jones Lang LaSalle.
In comparison, the whole of Europe (including UK) accounts for $ 1.9 billion (about 8%) of PE investment in the realty sector, said JLL India chairman Anuj Puri.
JLL Asia Pacific CEO Anthony Couse said, “The repercussions are being felt around the globe and we are likely to see a temporary slowdown in demand from Asian occupiers with operations in the UK. However, in the long term, once clarity emerges about the UK’s exit negotiations, we expect a resumption in confidence. For property markets, there will be a correction but that should be followed by an upturn as opportunities re-emerge in core markets and the benefits of a weaker sterling are recognised”.
The Indian market has raillied remarkably well after the Brexit referendum, but Brexit’s impact on the European economy may not insulate Indian realty completely, felt Khivraj Estates MD Ajit Kumar Chordia. There could be instances of investors looking at safer investment destinations.
There could be some short-term hold up of some Asia Pacific deals involving a high proportion of European-based investors, said Megan Walters, head of research for Asia Pacific capital markets at JLL. But “the weight of global capital is such that any gap left by European investors will be rapidly filled by other capital sources,” said Walters.
There is no dearth of PE fund in the market, noted Chordia. “PE fund managers are not getting viable projects. For every viable project with a minimum of 20% returns post-tax, there are at least six PE funds ready to invest,” he said.