Sluggish realty riding on private equity funds

By Ramesh Kumar Raja
In Issue 10
July 12, 2016
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Even though the real estate sector’s domestic front looks dampened, the private equity fund inflow has gained momentum riding high on the norms flexibility government has provided over the last couple of  years

realtyThere has always been a strong history of institutional investment in Indian real estate through both mediums;  direct ownership of property and pooled investment funds. Going back a bit in history, institutional real estate investments had dominated the sector and it was during 1990s that led to the emergence of strategic funds that were targeted to take the benefit of falling property prices and hefty discounts. Thus, in the beginning of the 21 st  century, private equity (PE) in real estate came into picture as an independent asset class and has been experiencing a huge growth off late. Even though the real estate sector’s domestic front looks dampened, the PE fund inflow has gained momentum riding high on the norms flexibility government has provided over the last couple of years. This in turn is allowing the Indian real estate sector to maintain a good balance of funds and is acting as a messiah in this sector’s revival days.

According to Manoj Gaur, president CREDAI-NCR & MD, Gaursons India Ltd, “Even though the domestic demand has failed to meet the expectations of the sector, international fund flow has ensured the upward side of the demand graph. Total private equity investments from foreign funds in Indian real estate grew by over 30 per cent from 2014 to 2015, and in fact, this number shaped up much better in the first half of 2015 and looks even better this year. DIPP’s flexibility of norms and relaxation towards entry/exit barriers has done the trick and the government’s decision towards allowing 100 per cent FDI in construction will be fruitful in years to come”.

“For any foreign investor, India is a real potential market that promises long term returns. Speaking about the real estate sector, government has provided a strong boost through its policy measures as well as mammoth infrastructural upgradation plans. With such announcements, private sector and primarily, international front will become extremely active as plans are big and will yield greater returns in future. Tier 1 cities will have the biggest chunk out of it and even last year itself, MMR, NCR and Bengaluru have in themselves accounted for over 70 per cent of foreign PE investments”, explains Rajesh Goyal, Vice president CREDAI-Western U.P. & MD, RG Group.

“For any foreign investor, India is a real potential market that promises long term returns. Speaking about the real estate sector, government has provided a strong boost through its policy measures as well as mammoth infrastructural upgradation plans. With such announcements, private sector and primarily, international front will become extremely active as plans are big and will yield greater returns in future. Tier 1 cities will have the biggest chunk out of it and even last year itself, MMR, NCR and Bengaluru have in themselves accounted for over 70 per cent of foreign PE investments”, explains Rajesh Goyal, Vice president CREDAI-Western U.P. & MD, RG Group.

Conditions of area restriction of floor area of 20,000 sq. mtrs. and minimum capitalization of $5 million required within six of commencement of business had been removed and since then a lot of FDI has flown in. Another important element that has come up and will act as a catalyst is the implementation of Real Estate Act. Foreigners transacting in India will now have a much secured environment to conduct business,” elucidates Deepak Kapoor, president CREDAI-Western UP & Director, Gulshan Homz.

Investments made during early 2000s and till the recession year, i.e. 2008 could not yield good results; coupled with a weakening rupee which depreciated by almost 45 per cent over the last half a dozen years, it has made investors largely hesitant. On the flipside though, in the upcoming four to five years, Indian residential real estate is projected to deliver almost 10 lakh units and thus there is a huge scope for inflow of funds. “In the first quarter of 2016, private equity investments rose by almost 40 per cent at Rs. 3,840 crore versus yearon-year  quarter 1, 2015, and here residential front took the majority share. Even the overall funds inflow had grown by over 30 per cent in the first quarter, where even the number of deals closed rose significantly. Relaxation of FDI norms and promise of better infrastructure along with hefty supply coming up are the real reasons behind this funds growth,” enlightens Vikas Bhasin, MD, Saya Group. Residential real estate in India has always been in demand due to the ever growing population.

Answering the housing needsof the public was always in the manifesto of the current government where Housing for all by 2022 and affordable housing has been the key jargons. “Participation of investors in real estate through private equity has been a result of long term visions and plans by the government. Housing for all, smart cities and affordable housing is keeping the interest of the investors extremely active, as these are all long term plans that will yield better returns. As the real estate sector move towards better policy implementations, investors will feel much more secured. Real Estate Act is now in place, and if industry status and single window clearance is executed in Indian real estate, this will greatly attract more foreign investors and multiply funds inflow”, shares Rakesh Yadav, Chairman, Antriksh India.

Speaking about how well the PE funds market has groomed in India with a lot more still in pipeline, Kushagr Ansal, Director of Ansal Housing concludes, “India has always been an untapped resource which is now gaining popularity amongst the globe, riding on strong policy measures taken by the government. Our realty sector contributes five to six per cent annually towards the GDP and thus, it is imperative to keep the things active here. Over the last couple of years, funds inflow has increased drastically especially in Tier 1 realty regions. Tier 2 and 3 cities will gain momentum as Smart cities and AMRUT has been worked upon. We are expecting private equity market to grow by almost 60-70 per cent in the upcoming 3-4 years versus today, particularly towards residential real estate, which will be closely followed by commercial and retail as well.”

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