As per global real estate consultancy, Cushman & Wakefield’s latest report on Private Equity investments in Real Estate (PERE), total inflows in the sector increased by 40% in Q1 2016 at INR 3,840 crores / INR 38.4 billion (bn) (USD 577.0 mn), as compared to the corresponding quarter last year. The total number of deals closed during the quarter increased by 13% to 17 from 15 in the corresponding quarter of 2015. Similarly, the average deal size increased by 23% over Q1 2015 to INR 2.3 bn (USD 34.0 mn). Unlike Q1 2015, which saw investments only in residential assets, the first quarter of 2016 witnessed investments across asset classes. The quarter saw over 48% share of total investment activity focussed on residential sectorwith about INR 1,870 crores / INR 18.7 bn (USD 281.0 mn) of investments.
Interestingly, the retail sector witnessed the second-highest investment accounting for 26% of total investments in the quarter since 2008 at INR 1,000 crores / INR 10.0 bn (USD 150.0 mn). The retail sector is seeing interest from foreign funds diversifying their investment portfolio, and some projects being on the block due to the fierce competition in the retail sector.The commercial office sector recorded total investment of INR 470 crore / INR 4.7 bn (USD 71.0 mn) in Q1 2016, as opposed to nil in corresponding quarter of 2015. Interestingly, Hyderabad was the only city which saw investments made in commercial office sector during the quarter, with Blackstone investing in Salarpuria Sattva Group’s project in Knowledge city.
Commenting on the report, Sanjay Dutt, Managing Director, India, Cushman & Wakefield said, “Domestic funds have continued to invest and focus primarily in residential asset class, as developers raised funds to meet their growing funding needs of working capital, construction financing and refinancing of loans. The investments are being made mostly at Special Purpose Vehicle (SPV) level, amidst slowdown in residential sales over the past 2-3 years. Large foreign PE funds such as Blackstone, GIC and Xander to name a few have been diversifying their investment portfolio in India and have been increasing their exposure to retail, mixed-use and hospitality sectors as well apart from investing in commercial and residential sector. This could be attributed to several opportunities arising across India wherein developers have been trying to raise capital by monetizing their distressed or non-core assets to reduce the high debt levels.”
Sanjay further adds, “The SPV level route continues to be the most preferred by domestic as well as foreign PE funds. However, it is observed that joint venture partnerships and strategic alliances route have picked up off late over the past 2 years, wherein more foreign PE funds, pension funds and global financial institutions have entered into such partnerships with their Indian counterparts and real estate developers. Various funds dedicated to specific asset class have been floated through such partnerships to invest in income generating commercial assets, residential assets and also in warehousing sector. With India being the only large economy in the world which is witnessing the highest GDP growth rate on the back of favorable macro-economic factors such as controlled inflation and declining interest rate regime, the interest of foreign investors has increased in India. Also, with the passage of Real Estate (Regulation and Development) Bill, 2015 coupled with exemption of Dividend Distribution Tax (DDT) for Special Purpose Vehicle (SPV) of REITs, it is anticipated that going forward the PE investments would rise.”
MUMBAI GARNERS OVER 44% OF TOTAL PERE INVESTMENT IN Q1 2016
The investments in Mumbai increased 12 times from the corresponding quarter of a year ago and were spread across retail and residential assets. The city continues to garner majority of the share in total PE investments for consecutively fourth quarter as it accounted for over 44% share with INR 1,710 crores / INR 17.1 bn (USD 258.0 mn) during Q1 2016. This was followed by Hyderabad which has 19% share with investments of INR 720 crores / INR 7.2 bn (USD 108.0 mn) spread across office and residential assets. Delhi-NCR attracted third highest share (12.5%) with inflows of INR 480 crore / INR 4.8 bn (USD 72.0 mn) spread over residential assets only.
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Sitara Achreja, Director, Marketing & Communications