After a long hiatus, private equity companies are eyeing the Indian real estate sector as buyers return to the market in the backdrop of falling interest rates and property rates.
Though property funds are getting proposals from developers, the standstill home sales in the third and fourth quarters of the previous financial year and the slow movement in commercial properties are prompting PEs to take a second look at their investments, sector consultants say.
The lull in this space was very evident: Only three PE deals worth Rs 600 crore have taken place in the realty sector in the last nine months as against Rs 40,000 crore worth of deals during the same period in 2008, according to Venture Intelligence, which tracks venture capital and PE investments.
The deals since December 2008 were: IL&FS buying 15 per cent in Mumbai-based Akruti City’s special purpose vehicle for Rs 200 crore, Sun-Apollo picking up 15 per cent in Mumbai-based Keystone Realtors for Rs 300 crore and Delhi-based Red Fort Capital investing Rs 90 crore in a luxury project of Parsvnath Developers.
Now, it seems that realty funds will loosen their purse strings again with funds such as Red Fort Capital, Saffron Asset Advisors, Ajay Piramal Group’s Indiareit Fund, ICICI Venture, Mumbai-based ASK Group and others who are in talks with developers.
On August 6, Delhi-based real estate firm 3C Company said Red Fort Capital had picked up 50 per cent stake in its Rs 1,550-crore project in the national capital region. Red Fort has already put in Rs 150 crore in the project, the company said.
Red Fort, along with Japanese firm Sumitomo Mitsui Banking, is also jointly bidding to buy management rights of Merrill Lynch’s $2.65 billion Asian Real Estate Opportunity Fund.
“Markets are moving on in residential side and customer confidence is up. Developers liquidity has also improved and hence we are seeing a revival of private equity interest in real estate,” said Subhash Bedi, partner, Red Fort Capital.
Ajay Piramal group-promoted Indiareit fund, which has so far invested Rs 1,500 crore in the country, is in talks with developers in metros such as Mumbai, Bangalore and Pune and is expected to sign deals in the next two months.
“I think there will be a lot of interest in the real estate space as there is a lot of unspent money with funds and investors,” said Ramesh Jogani, chief executive officer and managing director of Indiareit Fund Advisors.
The revival in property sales has also helped firms which are looking at raising funds. ASK Group’s Rs 500-crore domestic realty fund has raised Rs 200 crore from high networth individuals (HNIs) since its launch in April 2009. The fund, which is expected to close soon, is looking to invest in city-centric residential projects across the country’s prime cities.
However, analysts and fund managers say PEs are more cautious in terms of investments now compared to the last six months given the tough times the realty sector had to witness recently.
“PEs are asking for good deals with reasonable valuations. Nobody is looking at plain vanilla land deals, but at projects where a certain level of construction has been completed. They are only looking at projects where there is clear visibility of revenues and developers have sold a certain percentage of projects,’’ said Ambar Maheshwari, director of Investments at DTZ, an international property consultant.
“Overseas investors are cautious as realty, as an investment class, is going through a consolidation phase. In the next six to 12 months, we can see a interest revival as Indian growth story is on track,” said Ajoy Veer Kapoor, managing director of Saffron Asset Advisors which has invested nearly Rs 1,220 crore (180 million euros) in the country and plans to invest Rs 816 crore (120 million euros) by March 2010.