Private equity investment in the real estate sector jumped more than two-fold to Rs 8,900 crore till September this year as developers were forced to raise funds from PE firms to meet their capital requirements, property consultant Cushman & Wakefield said.
“This year alone PE funds have invested close to INR 89 billion (USD 1.5 billion) in the real estate sector until September 2014, more than double the amount invested during the corresponding period in 2013 (INR 42.7 billion/USD 0.7 billion),” C&W said in a report.
PE investments in the realty sector during the first three quarters of 2014 have surpassed the total investment levels for 2013 by 21 per cent, it added.
“This substantial increase in investments has been predominantly in under construction residential projects followed by acquisitions of leased office assets,” the report said.
Total number of deals also increased to 46 in the first three quarters of 2014 compared to 40 in the whole of 2013.
“Post the global economic slowdown in 2008, the RBI had discouraged banks from providing capital to the real estate sector. This led to an increase in cost of capital for developers borrowing from other lending sources, which was quite high and availability for which was limited.
“To meet capital requirements, developers are increasingly partnering with PE funds,” C&W said.
The consultant said that investment activity, which was vibrant in the first two quarters of 2014, gained further momentum in the third quarter.
“Investments worth INR 49 billion (USD 0.8 billion) were committed during the third quarter. While domestic funds contributed majorly (57 per cent) to the overall investments in 2013, foreign funds dominated in the first three quarters of 2014 with a 69 per cent share in overall PE investments,” the report said.
In terms of locations, Delhi-NCR, Mumbai and Chennai witnessed increased investments from PE funds during the first three quarters of 2014, with an increase in both transaction volume and number of deals from the corresponding period last year. Investment levels in Bengaluru remained stable while it declined in Pune.
About 41 per cent (INR 36.7 billion/USD 0.6 billion) of the total investments during the first three quarters of 2014 was witnessed in Delhi-NCR, which is an increase of close to 6 times compared to the first three quarters of 2013. In NCR, the PE investments were primarily in leased office assets.
By asset-class, office sector attracted highest PE investments at Rs 4,420 crore. Residential sectorwitnessed investments of close to Rs 4,180 crore while retail sector saw PE investments of Rs 300 crore.
Investor interest in the hospitality sector remained low with no investments in the segment recorded till September 2014.