MUMBAI: Institutional investors, including private equity, sovereign wealth and pension funds, continue to express rising appetite for Indian real estate. Matured yield-producing assets and competition among global investors for these assets have pushed the average investment per deal to $158 million, almost four times the average investment per deal concluded in 2011, showed data from Knight Frank India.
Private equity investments through debt and equity instruments across various segments of real estate have shifted to a new paradigm, post 2014 owing to a battery of reforms initiated by the government. These investments, including platform deals and commitments, grew at a Compounding Annual Growth Rate (CAGR) of around 36 per cent to $8.6 billion in 2017 from $2.5 billion in 2014. The Indian real estate sector was perceived by investors globally as developing in terms of quality assets across segments. However, the reforms and policy decisions over the past couple of years have collectively set a new order and changed the perception of global investors on India. “The real estate industry has been through a churn over the past few years due to a slew of structural reforms like demonetisation, GST and RERA. This led to a reduction in investment risk perception coupled with the availability of matured assets resulting in a record Rs 57,300 crore worth of private equity investments seen in 2017 alone, and the exuberance continues in the current year,” said Shishir Baijal, CMD, Knight Frank India. The series of reforms include implementation of the Real Estate (Regulation and Development) Act, 2016 (RERA), the Benami Transactions (Prohibition) Amendment Act, 2016, infrastructure status to affordable housing projects, demonetisation, interest subvention schemes, relaxation of norms to encourage Real Estate Investment Trust (REIT) listings and the Goods and Services Tax. “The rising average deal size and institutional investors’ aggression for Indian properties particularly commercial assets is a function of matured and ready projects with established rentals and occupiers. Hence, global players are willing to write bigger cheques for stabilized assets with lower risks associated with it,” said CEO of an international private equity major. The cumulative fund flow in the Indian real estate sector from 2011 to 2017 was recorded at $29 billion. Around two-third of this was invested over the past three years between 2015 and 2017. Even for the first half of 2018, the run rate is encouraging with around $4.9 billion being invested in the first six months of this year. According to Baijal, although office market has continued to remain strong, a closer look indicates that the once overlooked segments of retail and warehouse have seen a renewed interest from global institutional investors. The year 2016 and 2017 witnessed several big-ticket transactions of large mature assets such as the $1 billion Hiranandani-Brookfield deal in 2016 and $1.4 billion DLF-GIC deal in 2017. In the first quarter of 2018, a similar big-ticket transaction was closed between Indiabulls Real Estate and Blackstone. The average investment per deal increased by about 2.5 times from $40 million per deal in 2011 to $102 million per deal in 2017, and this has continued to rise in the first half of 2018. While the interest level continues to grow, there are few challenges for supply of such investible assets, experts said. Several deals are facing challenges due to violation of construction norms in the assets as these investors do not want to get associated with non-complaint assets and deals meet a dead end. Also, the acceptance of green buildings internationally has been evident with occupiers as well as investors, but in India, there’s still some time before the change becomes pervasive. According to experts, developers should focus on constructing green buildings despite higher initial cost, as in the future, the occupiers as well as investors would scout for such assets.
Property in Thane Contact Ace Constructions sales office