PE investment likely to touch $2 bn in 2014

Investors biased towards commercial office space with high occupancies or for residential projects as construction capital expects to continue

Private Equity (PE) investment in Real Estate sector is likely to exceed Rs 12,000 crore (around $ 2 billion) by the end of 2014, according to Cushman & Wakefield estimate.

The real estate research firm said second half of the year is expected to be around Rs 7,900 crore.

Private Equity investments in real estate was recorded at Rs 4,100 crore ($675 million) in first half of 2014 (January - June 2014).

Total investment in first half of 2014 was more than double the investment levels in the first half of 2013 was Rs 1,650 crore (around $294 million).

This is also the highest levels of investments during the first half of the year since first half of 2009 was Rs 4,950 crore(around $1 billion).

Total number of deals in the first half of 2014 increased substantially to 28 compared to 13 in the first half of 2013; even the average deal size increased by 16% to Rs 146 crores ($ 24 million).

The total value of investments in the construction development (residential segment) for the first half of 2014 was recorded at Rs 2,357 crores ($390 million), constituting nearly 60% of the overall investments.

In the residential asset class, Private Equity funds are now being viewed favourably by developers as PE money is being used for de- risking projects and as strategic long term partnerships for further expansion and development.

Total value of investments in the purchase of leased office assets for the first half of 2014 was recorded at Rs 1,435 crores ($236 million).

"With the steady rise in the office absorption trends which has also seen a corresponding positive impact on the rental and capital values have been attracting investments. The fund allocations and capital raising activities for purchase of leased assets by Private Equity firms has also increased due to the positive market activities in this segment," said in the report.

The report stated that around Rs 9,870 crore ($ 1.8 billion) has been invested in the commercial office sector since 2011 till first half of 2014.

Whilst in first half of 2014 Rs 1,435 crores ($ 236 million) was committed to leased office assets, the second half of this year could witness Rs 3,980 crore ($ 662 million) a further increase of around 177% from first half 2014.

Overall the year could end with Rs 5,415 crore ($ 898 million) invested in office assets up by 119% from last year's investment volume of Rs 2,476 crore ($ 413 million).

In a statement Sanjay Dutt, Executive Managing Director South Asia, Cushman & Wakefield said that clarity in the governance process and the advent of a stable government with BJP winning elections with a thumping majority at the centre will be critical to the stability of the investment market.

Added to this, the recent announcements, strengthening the real estate sector will further the cause of the sector. The Private Equity investments have been bias towards commercial office space with high occupancies or for residential projects as construction capital.

This trend is expected to continue for the rest of the year, due to the high economic viability of these projects.

"There is an increase in interest globally in committing funds for Indian real estate through private equity. These funds are being raised mainly for residential construction development projects and leased office purchases.

There is high liquidity being committed from both domestic and offshore investors".

He noted, many sovereign and pension funds are also committing funds to Indian real estate like All Pensions Group (APG Group), Abu Dhabi Investment Authority (ADIA), Qatar Investment Authority (QIA), Canada Pension Plan Investment Board (CPPIB), State General Reserve Fund of Oman (SGRF), GIC of Singapore etc. through fund managers.

Piramal Fund Managers (IndiaREIT), Xander Advisors, Kotak Realty Fund, JP Morgan, ASK Advisors, etc have raised funds recently.