The real estate sector continues to confront liquidity issues owing to subdued demand and restricted debt funding. However, private equity (PE) funds have continued to gain strength as an alternate source of funding. PE fund inflows into the real estate sector in the first quarter of calendar 2015 grew 85 per cent to Rs.5,168 crore, of which the residential sector attracted 53 per cent.
A study by real estate consultancy Cushman & Wakefield attributed the increase to improved market sentiments and higher investments in residential and commercial office assets.
The report said Chennai was the only city to see investment in commercial office in first quarter of 2015. However, it said leased office assets such as IT parks and IT-SEZs are likely to gain significant interest from foreign investors “due to low risk, owing to high occupancy levels along with stable rental yields, and significant potential for capital value appreciation. In addition, the introduction of REITs (real estate investment trusts) in India is likely to boost investments as investors now have an exit route.”
During the period, residential assets recorded the second highest PE investment since 2008 with total value of investments in residential sector 2.5 times more than the year ago figure at Rs.2,752 crore. The total investment in commercial office assets was at Rs.2,416 crore, up 68 per cent. It was the third highest investment in the commercial office sector since 2008.
“With improving macro-economic conditions, enabling policy environment, recovering demand, attractive valuations and increasing capital requirements of the Indian real estate sector, PE funds are likely to increase their investments in the next few years,” Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield said in a statement.
“However, the PE funds are likely to take only calculated risks and collaborate strictly with renowned developers to protect their investments.”
The report said that although the number of deals during the quarter fell to 16 from 18, average deal size more than doubled to Rs.320 crore from Rs.150 crore.
