The cash-strapped real estate sector has been increasingly turning to private equity (PE) and structured debt to meet its funding needs. Faced with a liquidity crunch, high land acquisition costs and increasingly tough due diligence by banks owing to its ‘risky’ nature, real estate players have been opting for private funding.
According to real estate consultancy Cushman & Wakefield, total PE inflows into the sector in the first quarter of 2014 were Rs.2,800 crore ($460 million), which is 2.5 times the investment in the same period last year and a 28 per cent jump over the preceding quarter.
Sanjay Dutt, Executive MD, South Asia, Cushman & Wakefield, said “a number of funds have committed funds towards investments in India real estate, this is expected to translate into increasing transactions in the sector, especially in income yielding assets”.
“Funds are happy to provide funding in the form of structured debt but at high costs but they will fund projects mainly in Tier-I cities,” Gaurav Kumar, co-Head, Capital Markets, CBRE South Asia, told this correspondent.
With a significant rise in the level of in-bound private equity in the last two years, the dependence on traditional funding routes such as banks and non-banking finance companies have come down, said Ashutosh Limaye, Head-Research and Real Estate Intelligence Services, Jones Lang Lasalle India.
The most active PE players have been Blackstone, Xander group, Red Fort Capital and Avenue Venture.
In future, more platform deals and equity stake acquisitions are likely to be seen and the entry of real estate investment trusts (REITs) would provide alternative funding channels.
According to CBRE South Asia, “a forward looking legislation on REITs will be a key enabler for capital markets and shall be the single-most consequential reform witnessed in the sector in recent times”.
