Home / Companies / PE funds invest $2.4 billion in 53 real estate deals this year

Bengaluru: Foreign institutional investors (FIIs) and the private equity (PE) funds made a beeline to invest in residential and commercial projects this year, reinforcing their faith in India’s real estate sector, amid a two-year-long slowdown that continues to see tepid sales and an inventory pile-up.

PE funds invested about $2.4 billion in the real estate sector, across 53 transactions, during the first nine months this year, surpassing the full-year investments of $2.1 billion in 2014 across 80 deals, according to data from VCCEdge which tracks investments.

Last year, the January-September period saw $1.3 billion in investments across 57 transactions, as per the data.

Deal sizes have also increased in 2015, and residential projects, luxury and affordable, attracted a substantial amount of capital.

In the single largest transaction this year, the Government of Singapore Investment Corp. Pte Ltd (GIC), a sovereign wealth fund fairly active in the real estate sector in recent months, said it will invest about 1,990 crore (about $300 million) in two upcoming residential projects of DLF Home Developers Ltd, a subsidiary of DLF Ltd, through a joint venture.

“GIC is confident of India’s long-term growth potential," said Loh Wai Keong, managing director and co-head (Asia), GIC Real Estate, a subsidiary of GIC, adding that the fund hopes to leverage mutual strengths to grow the partnership and collaborate on more projects in the future.

Marquee investors Warburg Pincus Llc and Goldman Sachs Group Inc. picked up minority stakes in Piramal Realty, the new real estate development arm of the Piramal Group, for 2,700 crore in total (about $420 million).

Goldman Sachs, besides the Piramal investment, also partnered realty firm Nitesh Estates Ltd to jointly invest up to $250 million in profitable commercial real estate assets in a so-called platform deal between an investor and a developer.

“Asset prices and valuations have become more reasonable, entry barriers are lower and the larger regulatory framework appears more conducive for global institutional players to enter into business alliances in India," said Amit Goenka, managing director and chief executive of Mumbai-based Nisus Finance Services Co. Pvt. Ltd, a company specializing in real estate services. Most of the investments, like last year, are focused on top property markets, such as the National Capital Region (NCR), Mumbai, Chennai and Bengaluru.

And unlike the 2008 slowdown, there seems to be no dearth of capital in the sector today, though most of the capital available from domestic funds is structured debt, as fund managers remain cautious of taking equity risks.

Money that is being raised by realty firms is primarily used to refinance existing loans, as cash flows remain weak on the back of slow sales. With developers holding back fresh project launches, they also need capital for project execution to speed up delivery of homes.

“Though foreign institutional investors largely believe equity is the need of the hour, domestic fund managers have stuck to debt-lending. The sector needs equity because today, the developer is under constant pressure to service loans and many are highly leveraged," said Amit Bhagat, chief executive officer and managing director at ASK Property Advisors, which does equity investments in residential projects.

But with lowering of interest rates due to the large availability of capital, funds may have no choice but to gradually move towards more equity-structured deals in the future, Bhagat said.

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