PE investments in real estate sector drop 15%

Cushman & Wakefield report cites govt policies, uncertain investment scenario as reasons for the dip

Private equity investments in the real estate sector dropped by 15% during the first three quarters of 2012.

According to the Cushman & Wakefield report, the sector attracted Rs 35 billion, which is around 15% lower than the same period last year. The total number of private equity transactions till date in 2012 is 23, marginally lower when compared to same period last year.

Of the total investment in first three quarters of 2012, the first quarter saw majority of the investments at Rs 21 billion while the remaining two quarters recorded investments of Rs 13.8 billion. While the second and third quarters depict a drop in investment volumes, the real estate sector continues to attract steady investments, the report said.

Sanjay Dutt, executive managing director - South Asia, Cushman & Wakefield in a statement said that the reason for the fall in the number of deals was due to a lot of concerns on the government policy front coupled with an uncertain investment scenario, valuation and continued focus on exits for some vintage funds.

However, recent policy initiatives and opportunities in key markets such as NCR, Mumbai, Pune, Bengaluru & Chennai should turn things around in the coming quarter and make up for the shortfall.

Of the total Rs 1,380 crore invested, Mumbai continued to be the preferred destination for private equity investments followed closely by Bengaluru and NCR.

The three major cities received majority of investments over the years. However, their share reduced from 84% in the first three quarters of 2011 to 78% in same period this year. Other cities including Pune, Chennai and Hyderabad have witnessed steady interest from private equity investors.

The residential segment witnessed maximum private equity investments at Rs 20.6 billion during the first three quarters of 2012. Its share in the total private equity investments increased by 9% in first three quarters of 2012 compared to 2011, although the quantum of investments have been similar during the two periods.

Income yielding office also continued to interest and attract investors.

Most of the deals in 2012 were executed through Special Purpose Vehicles (SPV) in contrast to last year where investments were witnessed in both entity and SPV level. 

The office segment also continued to attract investment with a higher number of deals over last year. However it saw a decline in investment volume by 12% during the first three quarters of 2012 compared to same period last year due to lower average deal size.

Around Rs 6.1 billion of the private equity investment in real estate during 2012 was in leased commercial assets, considerably lower than the same period in the previous year that saw investments of Rs 15 billion.

Announced PE Deals Volume - INR billion

 Total Q1 1110.6 Q2 1112.9 Q3 1117.6 Total 2011 (3 quarters)41.1 Q1 1221.1 Q2 129.5 Q3 124.4 Total 2012 (3 quarters)35.0

Source: Cushman & Wakefield Research