Indian Economy News

PE investments in real estate up 85% in January-March period

  • Livemint" target="_blank">Livemint
  • April 28, 2015

Mumbai: Private equity (PE) investments in India’s real estate companies rose 85% in the January-March period from a year ago, a report said.

PE firms invested Rs.5,168 crore in real estate firms during the period, up from Rs.2,800 crore a year ago, the report from global property consultancy Cushman and Wakefield said. However, compared to the October-December quarter, the investment was 5.6% lower.

Improving macro-economic conditions and increasing capital requirements of the Indian real estate sector have sparked PE firms’ growing interest in real estate firms.

“Amidst liquidity issues faced by residential developers due to subdued demand and restricted access to debt funding, PE funds have emerged as an important alternate source to meet the funding requirements,” the report said.

The residential sector attracted 53% of these funds, while the rest went to the office sector.

Total PE investments in residential assets, which stood at Rs.2,752 crore, is the second highest since 2008. In the commercial space, total investment at Rs.2,416 crore is the third highest since 2008.

“The increase in PERE (PE in real estate) investments during Q1 2015 was due to improved market sentiments and higher investments in residential and commercial office assets, which increased by 158% and 68% respectively compared to Q1 2014,” the report said.

While the total number of deals fell to 16 in the first quarter of 2015 from 18 in the same period last year, the average deal size more than doubled at Rs.320 crore from Rs.150 crore in the first quarter of 2014, the report said.

Relatively attractive return on investments and easy exits, increased focus on housing from the government and high funding needs are likely to sustain the high investments in residential assets, it added.

The report said that leased office assets such as information technology (IT) parks and IT-SEZs (special economic zones) are likely to gain “significant interest from foreign investors, due to low risk owing to high occupancy levels along with stable rental yields and significant potential for capital value appreciation”.

Around $3.4 billion has been invested in the commercial office sector since 2011, compared to only $1.1 billion between 2008 and 2010.

“With improving macro-economic conditions, enabling policy environment, recovering demand, attractive valuations and increasing capital requirements of the Indian real estate sector, PE funds are likely to increase their investments in the next few years,” said Sanjay Dutt, executive managing director, South Asia, Cushman and Wakefield.

He said residential and leased office assets will remain favourites with PE funds as capital demand remains strong in residential projects. With a 35% increase in office net absorption, there is ample scope for the funds to generate high yet stable rental incomes.

Sanjay Mehrotra, national head (sales and marketing) at L&T Realty, the real estate arm of Larsen and Toubro Ltd, said the improved return on the equity on real estate investments could be one of the factors that are drawing PE companies into India. However, he cautioned that it is very difficult to match up with the expectations of PE firms.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.