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Private equity funds returning to realty space again
Source: The Economic Times Feb 23, 2014
Private equity funds returning to realty space again

The Economic Times

Optimistic about the revival of economy after Lok Sabha elections, foreign and domestic private equity players are now returning to Indian real estate sector, but with caution and will focus on top six-seven cities, say industry experts.

Last year witnessed as many as 393 PE deals totalling $9.67 billion, out of which $40 million were in the real estate sector.

"We believe the current sentiment cannot become worse than (in the) last few years. The real estate sector is expected to witness a revival this year. This positive sentiment is encouraging private equity players to re-look at the sector for investment," PwC executive director Shashank Jain told PTI.

Both the domestic as well as international players are looking at investing in the sector, he added.

In January, ASK Group raised its first tranche of $50 million of $200 million off-shore funds to invest in mid-income residential projects. Brick Eagle Group is raising $100 million to invest in lands for affordable housing development.

Indiareit Fund Advisors has finished raising $160.5 million to buy property assets in the major metros. IPAL has begun the process to raise $250-300 million through an offshore fund, and Rs 300 crore through a domestic fund to invest in redevelopment projects in the megapolis.

Qatar Investment Authority is in talks to invest $200 million in some residential property in the country, while Milestone Capital Advisors is also in the process of raising Rs 500-crore real estate fund, which is likely to be launched in the next few months, according to industry sources.

"Improvement in policy framework, banking sector reforms, and increase in construction activities are encouraging investors to look at real estate. There have been investments in real estate asset class, which are giving double digit returns of around 20-22 per cent," Milestone Capital director Rubi Arya said.

She said investors are now looking at more stable assets which will give higher returns. "With REITs (Real Estate Investment Trusts) coming in, investor interest in the commercial segment is likely to get a fillip. Besides, as the demand for housing is growing, the residential segment will also see investments flowing," Arya said.

Investors will, however, be more cautious while investing in projects, according to PwC's Jain.

"We had witnessed rigorous investments in the sector in the last few years. But after the slowdown, investors have become more cautious in partnering with developers as well as projects. Exits have also become more thoughtful," he said.

Jain also mentioned that some of the funds raised are also being utilised by developers to make partial exits from debts raised from domestic non-banking financial companies. These NBFC loans are costlier than those raised via banks.

International players like Brookefield Capital, Blackstone, Xander Group, JP Morgan Private Equity, Qatar Investment Authority, Brick Eagle have been investing in the country, but many foreign players are still adopting a wait and watch approach, CBRE South Asia co-head for capital markets Gaurav Kumar said.

"Some of these international players have been here for some time, but there are many more investors who want to invest in the sector but are very cautious. We don't expect to see much activity from foreign investors at least in 2014," he said.

He also observed that investments are likely to be concentrated in the top six-seven cities where infrastructure ecosystem is in place.

"Investments are likely to be concentrated in traditional cities where development (in real estate and infrastructure) is coming, which is mainly in Mumbai, Delhi NCR, Chennai, Bangalore, Kolkata, Pune and Hyderabad. Unless there is development in tier II cities, investments are unlikely to flow in those regions," Kumar added.

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