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The Indian realty sector is witnessing a surge in PE investments

04, October 2016 | Prashant Mehta

The investments by private equity firms in the Indian realty sector are witnessing an upward correction.

Within the Indian realty sector, there are two segments viz residential and commercial

As per the report by the international property consultant Cushman & Wakefield, investments have increased by 64% value-wise in the Jan-June period of 2016 to reach a level of Rs 19,137 crores as compared to the same period in 2015.

This is due to increased interest from both domestic and global investors on the back of reviving economic confidence.

The residential asset class commanded the largest share of 44 percent in the total investments during January-June 2016 while commercial office asset class accounted for 22 percent of the investments.

Further, in terms of the number of deals done in the realty sector the figure was 46 during Jan-June 2015 as compared to 57 during the same period in 2016. This represents an increase of 23.9%

Within the 57 deals “Retail” saw a significant increase in their share in investments to 18 percent during January-June 2016 as compared to 2 percent recorded during the same period in 2015.

Retail commercial sub-segment means shopping complexes, malls and supermarkets/hypermarkets

Retail residential sub-segment means smaller residential flats usually below 1500
sq. Feet

Other sub-segments like Hospitality and mixed-use (mixed use means dual use for commercial as well as residential purposes) asset classes cumulatively accounted for the remaining share.

Private equity investments in the realty sector (particularly in the residential segment) are through the structured debt route. In this mechanism private equity investors invest with real estate developers using instruments which give them a fixed rate of return for a fixed tenure.

The report further said that the entire year 2016 could record the highest private equity investments in real estate since 2008 at an estimated Rs 43,600 crore.

"This Bull Run is expected to continue in the short term with more investments being made in completed/leased corporate assets and other commercial activities such as retail and hospitality and we expect 2016, to be one of the best years in recent past for the real estate sector," C&W India Managing Director Anshul Jain said.
However, he expected that by mid-2017, there could be a peculiar situation of non-availability of suitable projects for investments, as most of the investible properties would be committed to.

Estimating from the pipeline for the rest of the year, C&W said 2016 is expected to witness the highest PE investments since 2008 through the sale of sizeable stakes in office portfolios by some of the prominent Indian developers.

"The cumulative value of these stakes is estimated to be between Rs 21,500 crore and Rs 24,000 crore. Owing to improving economic outlook and uptick in leasing activity for office spaces, some of the PE firms are increasing their portfolio of office spaces, possibly with an intention to launch their own REITs," the consultant said.

The Indian realty sector remains amongst the favorite sectors for investments by Private Equity firms and this trend is leading to higher investments which are likely to continue in2016.

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