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Private equity (PE) funds worth $955 million (Rs 5,730 crore) have flown into the Indian real estate sector so far this year (January-September 2014), compared with $754 million (Rs 4,524 crore) in 2013 (full year), according to data by VCCircle's data research arm, VCCEdge.
Of the 29 deals that happened this year, the bulk of the funds have gone into residential real estate, data showed. Realty experts say property funds are betting on recovery in the residential real estate segment.
"PE funds are betting on recovery in the economy, which would lead to the recovery in real estate. They want to put money in the beginning of recovery curve than at the end of the curve," said Sanjay Dutt, managing director of Cushman & Wakefield, a global property consultant.
According to Dutt, most of the capital is going to residential projects, followed by income-generating projects.
"The worst is behind us and growth is back. Developers have launched a lot of projects and banks, non-banking financial companies (NBFCs) and high net-worth individuals have started financing them," said the CEO of a PE fund.
Major realty players such as DLF are of the opinion that although sentiments have improved and inquiries have gone up after the new government came to power at the Centre, the real recovery is still a couple of quarters away.
Some PE funds such as ASK Property Investment Advisors are betting on profit margins of the developers. ASK has done deals worth $30 million this year, with developers such as Paranjape Schemes in Pune and ATS group in the national capital region (NCR).
"What we are saying is that at current rates property prices may correct 10 per cent, but developers can still make 25-30 per cent margins. Their margins will be protected for three-four years and we are on a safe side," said Amit Bhagat, CEO and managing director of ASK.
According to the CEO cited above, developers were borrowing funds to "reprofile" their loans - which means to replace the existing loans, construction financing, and land acquisition.
According to Vijay Wadhwa, the promoter of the Wadhwa group, PE funds have become more liberal with developers. "Earlier, PE funds were expecting 24-26 per cent returns. It has come down to 20-22 per cent. I believe the rates need to come down to 16-17 per cent," said Wadhwa.
A few months ago, Wadhwa had raised funds from the NBFC arm of US investor KKR for its project at Ghatkopar area in Mumbai. Part of the funds were reportedly used to repay Indiabulls Financial Services.
