Private equity inflows in real estate up 62% to Rs 38,000 crore in 2016

Real estate sector attracted Rs 38,000 crore as private equity investments last year, up 62 per cent from 2015, even as the industry is facing a multi- year demand slowdown, according to property consultant JLL.

"In 2016, the private equity inflows into Indian real estate showed a 62 per cent increase (year-on-year). The total inflows last year stood at Rs 38,000 crore compared to the 2015 figure of Rs 23,500 crore," JLL India Managing Director (Capital Markets and International Director) Shobhit Agarwal said in a report.

Though the historic high of 2007 (in terms of total PE inflows) was not breached, last year proved to be the second-best year so far, he added.

Out of the total PE inflow, Rs 13,500 crore was investment through pure equity while the rest was through different structures of debt. Even in terms of pure equity, 2016 saw an impressive increase of 29 per cent (year-on-year).

"In 2016, equity investment was seen on a return journey to India. After the change in its regulatory framework, the country is now looking way more attractive to investors both foreign and domestic than ever before," Agarwal said.

Asked about the reason for increase in PE inflow, he said "despite demonetisation and an overall poor scenario in the real estate industry, it has attracted Rs 38,000 crore last year on the back of the policy changes which will make the industry more transparent and increase corporate governance," JLL said.

"With limited cash outflows allowed until completion of the project (thanks to the RERA) and lower demand for properties (thanks to demonetisation and the Benami Property Act), developers are under pressure. New cash flow generation will reduce further," it added.

With limited scope for further leverage, the consultant said that developers would be open to providing good entry points to the long-term equity investors.

The country is bound to attract more equity investment with an improvement in India's rankings on different indices and a pro-active government keen on improving these further, he said.

The consultant added that the PE inflow in second half of 2016 jumped more than two-fold to Rs 21,000 crore from Rs 9,500 crore in the previous year.

"This was due to increased confidence shown by investors post the Parliament's passage of RERA [Real Estate (Regulation & Development) Bill] and GST," Agarwal said.

On the outlook for this year, he said this year might even turn out to be slightly better than 2016 despite Brexit and the outcome of the US presidential elections.