2015 PE realty investments up 72%
Private equity (PE) investments in the real estate sector rose by 72 per cent to Rs 25,683 crore last year, highest since 2008, mainly on fund infusion in the sluggish housing segment, according to property consultant Cushman & Wakefield. Out of the total PE investment in the realty sector during 2015, over Rs 18,000 crore was in residential segment, which is facing a huge slowdown since last 2-3 years, resulting in liquidity crunch and significant delays in projects execution.
According to the C&W, the total PE inflows in the sector stood at Rs 25,683 crore in 2015. “The PE investments were considerably higher by 72 per cent from the previous year and highest since 2008. The substantial increase in PERE(Private Equity in Real Estate) investments during the year was led by a three-fold jump in investments made in the residential sector,” the consultant said in a statement.
The total number of deals also rose to 90 during 2015 from 75 in the previous year. Moreover, the average deal size too increased and was noted at Rs 290 crore, a rise of 43 per cent on year-on-year basis. Housing segment attracted the highest share of investments during 2015 with over 70 per cent share in total investments, followed by the commercial office with 21 per cent share.
The total value of investments in the residential segment stood at Rs 18,070 crore. “PE funds continue to make majority of the investments in the residential sector at the project level.
The investments in the residential sector has come at a time when residential sales have been sluggish for over past two years, leading to burgeoning inventory levels,” it said. The consultant expects residential sales to “see green shoots” in 2016, owing to falling interest rates regime on home loans and rising income levels especially if the Seventh Pay Commission gets implemented. Total investment in commercial office assets was recorded at Rs 5,420 crore, a decline of 28 per cent, from record high inflow witnessed in the previous year. C&W Executive Managing Director South Asia Sanjay Dutt said: “Although SPV (Special Purpose Vehicle) level deals by way of structured debt has been the preferred route adopted by majority of the PE funds to make investments, entity level deals too have seen healthy pick-up both in terms of deals and investment volume”.
However, he said the global funds have been selective and have made investments only with companies which have good credentials and a proven track record. “The trend of higher investments through SPV level deals is likely to continue going forward too in 2016 and overall investments are likely to increase owing to growing funding needs of developers, rising optimism in the Indian economy.
“And new set of investors such as global financial institutions who have started exploring opportunities to reap better returns by investing in Indian real estate sector,” Dutt added.