A fall in valuations, better prospects and proposed real estate investment trusts (Reits) are prompting foreign investors such as GIC, Blackstone and Ascendas to pump in large sums into commercial properties here.
Back-of-the-envelope calculations show Blackstone and GIC-Ascendas will together invest at least Rs 7,000 crore in the commercial realty space in India.
On November 19, GIC, the Singapore government's sovereign wealth fund, and Ascendas, a developer-investor from the same country, announced that they would invest Rs 3,000 crore in Indian business properties.
The duo has set up Ascendas India Growth Programme, in which GIC will be the principal investor. The fund will invest in business spaces in Bangalore, Chennai, Pune, the National Capital Region, Mumbai and Hyderabad.
The announcement of the two Singapore-based entities comes at a time when US-based private equity giant Blackstone is looking to invest about Rs 4,000 crore in commercial properties.
Blackstone is in the final stages of signing a Rs 900-crore deal to buy Express Towers in Mumbai; it is also competing with GIC to buy Unitech's 3.6-million sq ft IT park in Gurgaon for about Rs 2,600 crore.
According to sources, Blackstone is also in the final stages of talks with HCC Real Estate and Milestone Capital to buy their office park in Vikhroli area of Mumbai for Rs 1,000 crore.
Blackstone has invested about $500 million (around Rs 3,100 crore) to buy leased properties in the country. In some cases, it has lapped up the entire stakes in commercial properties; it bought the infotech special economic zone of DLF-Hubtown in Pune, while in some cases like Express Towers, it has teamed up with property developers.
"Most of Blackstone's portfolio has very good tenants and strong contracts. Second, they believe rents are low now and are bound to go up as the economy recovers and the business scenario improves," said an executive who had worked with the Blackstone group earlier.
According to sources, Singapore-based Mapletree, US-based Morgan Stanley and JPMorgan are also scouting for investments in commercial real estate here.
"Today, markets (commercial properties) are at rock bottom and most of the assets are distressed. It is the best time to buy them. Investors are acquiring assets at 20-25 per cent lower than market valuations," said Ashok Kumar, managing director of Cresa Partners, a commercial realty services firm.
According to property consultant CBRE, office space absorption in the country has declined 14 per cent in the September quarter to six million sq ft, compared to seven million sq ft in the previous quarter. Both the main business districts in Mumbai-Nariman Point and Bandra Kurla Complex saw rentals declining by two-to-three per cent in the September quarter due to weak demand, CBRE said. "If they hold on to investments for three to five years or more, they will get good returns," said Kumar.
Shobhit Agarwal, managing director (capital markets) at property consultant Jones Lang LaSalle, believes most investors expect demand for commercial properties to pick up in the next couple of years.
"Earlier there was no ready stock for them to invest. Now, many areas such as Whitefiled and outer Ring Road in Bangalore and Lower Parel in Mumbai have good quality buildings where they can invest," said Agarwal.
Many real estate experts believe proposed Reits have also triggered new investments from global investors. "Investors always had doubts about exits. With Reits, they can float their own Reits and exit. There are no development risks, approval risks and leasing risks once Reits become a reality," said Sanjay Dutt, managing director of Cushman & Wakefield, a global property consultant.
Reit is a vehicle to invest in real estate assets to generate income, which is passed on to investors. Just like a stock, a Reit unit is listed and traded on a stock exchange. Last month, the Securities and Exchange Board of India came out with draft guidelines for Reits.
"They believe the government will create an institutional mechanism for exit opportunities," said the former Blackstone executive.
According to property consultants, most of Blackstone's portfolio is leased property, which will help the fund float Reits as the investment vehicles need to distribute rental income as dividends. About 90 per cent of its Eon Free Zone is leased out and most of the properties of the Embassy Group, where Blackstone has invested, have also been leased out.