Private Equity investments in real estate double in 2014

PE funds likely to invest even more in the next few years

In a clear indication of renewed interest among investors in Indian real estate, the total private equity (PE) investments in the sector in 2014 more than doubled to Rs.15,410 crore from Rs.7,360 crore in 2013.

A report by real estate consultancy, Cushman & Wakefield said this is the highest since 2008 when the figure was Rs.17,440 crore.

The report said the higher investment in 2014 was on account of high level of interest in leased office assets with several foreign investors acquiring IT parks and IT-SEZs. Investment activity in under-construction projects in the residential segment also improved significantly and owing to attractive yields and prospects of capital appreciation, leased commercial office assets too saw significant demand from investors.

PE funds emerged as an important source of funding for the residential segment as the segment had liquidity issues following subdued sales and restricted access to funding.

The segment attracted Rs.6,060 crore investments in 2014, up 70 per cent.

The total number of deals in 2014 rose to 73 from 40 in 2013 and average deal size rose 15 per cent to Rs.210 crore.

Renewed interests

Sanjay Dutt, Executive MD, South Asia, Cushman & Wakefield, said aggressive acquisitions by foreign funds in the Indian real estate assets during 2014 “is an indicator of renewed interest in the sector.”

 The PE investments were primarily in commercial office assets, which had a 53 per cent share in overall volume, followed by residential sector at 39 per cent. The investments in office segment at Rs.8,110 crore more than doubled in 2014. “Attractive valuations, stable yields and significant potential for capital value appreciation as a result of increasing demand (net absorption for top eight cities increased 33 per cent in 2014) have led to a number of foreign investors acquiring prime office assets across top cities,” the report said.

“With increasing capital requirements of the Indian real estate sector and in anticipation of improving macro-economic conditions, PE funds are likely to invest even more funds in the next few years,” Mr. Dutt told this correspondent. “This will be driven by government measures to attract further investments and Real estate investment trusts (REITs) coming into play this year. Also, there is optimism among investors given the market slowdown in the Asia-Pacific countries.”