Indian realty sector attracts $6bn PE investment

Indian realty sector attracts $6bn PE investment

New Delhi: The current global financial crisis might have cast a shadow on the Indian property market, but the country’s real estate sector witnessed an inflow of about $6 billion from global private equity players during the last one year.

According to a report by global realty consultant Cushman & Wakefield (C&W), PE funds struck 79 deals in the country during August 2007-August 2008 amounting to $6 billion, a rise of 100% over the same period a year ago.

The amount received has been evenly distributed among SPV and portfolio level attracting a total investment of Rs10,000 crore each, while that of entity level was at about Rs6,970 crore, the report ‘The Metamorphosis - Changing dynamics of the Indian Realty Sector´ said.

“The commitments by the PE funds clearly indicate investor confidence in the Indian market scenario. While we have seen a dip in total amount committed in the second quarter of 2008, the wait and watch approach by the PE funds scouting for the opportune partner will force Indian developers to re-work their valuations and construction timelines to make them more reasonable," C&W India Joint Managing Director Sanjay Dutt said.

“PE players have also increased their internal rate of return (IRR) expectations from projects to cater to the increase risk," he added.

The report said residential sector was the most preferred area of investment for PE players, accounting for about 41% of total inflow in the year. Township developments received about 21% of the total commitment.

“Commercial real estate sectors (office, retail, SEZ and mixed-used) have attracted significant investment to the extent of approximately 5,760 crore, which forms 28% of the total investment in SPV’s (Special Purpose Vehicles)," it added.

In terms of regional distribution, the study pointed out that western and southern zones accounted for almost 70% of the total investments, followed by northern region 26%.

South zone saw 24 deals - the maximum - but the average size of deals in this zone was significantly lesser than the northern and western zones.

“This is largely on account of southern cities showing definite market trends and rationalised valuations. Higher valuations in Mumbai and Delhi (NCR) have contributed to a large extent to the higher average size of the deals in this region," C&W said.

The eastern zone (primarily West Bengal) was not able to evince significant interest among investors, the report added.

Bangalore and Hyderabad were the hot favourite of the PE investors attracting nine and six SPV level deals each, followed by Mumbai and NCR with eight and seven deals respectively.