2016 Could record highest ever real estate PE investments at Rs.436 billion
01 Sep 2016
Long Read
2016 could record the highest private equity (PE) investments in real estate since 2008, which is estimated to be Rs 436 billion, esimates global real estate consultants Cushman & Wakefield. Of the total expected PE investments in real estate, over Rs 245 billion is expected to be in the second-half of the year, while the first-half of 2016 recorded a total of Rs 191 billion of PE investments in real estate. The period from January to June saw an increase in PE investments in real estate by 64 per cent to Rs 191.370 billion as compared to Rs 116.349 billion recorded in the same period of 2015. The total number of deals closed during H1 2016 increased 24 per cent to 57 from 46 in the corresponding period of 2015.
| ANNOUNCED PE DEALS: CITY-WISE - VOLUME – (INR bn) |
| Period |
Mumbai |
Delhi NCR |
Bengaluru |
Chennai |
Pune |
| H1 2016 |
68.53 |
64.1 |
21.74 |
2.96 |
9.88 |
| H1 2015 |
36.24 |
14 |
19.544 |
27.62 |
7.8 |
SECTOR-WISE BREAK UP
Source: Cushman & Wakefield Research, Real Capital Analytics
The residential asset class commanded the largest share of 44 per cent in the total investments in H1 2016 while commercial office asset class accounted for 22 per cent of the investments. Retail saw a significant increase in their share in investments to 18 per cent in H1 2016 compared to 2 per cent recorded in H1 2015. Hospitality and mixed-use asset classes cumulatively accounted for the remainder of the share (17 per cent).
| ANNOUNCED PE DEALS: ASSET CLASS-WISE - VOLUME – (INR bn) |
| Period |
Residential |
Office |
Retail |
Chennai Mixed-use |
| H1 2016 |
83.65 |
42.36 |
33.5 |
27.46 |
| H1 2015 |
68.398 |
35.14 |
2.5 |
3.25 |
SECTOR-WISE BREAK UP
Source: Cushman & Wakefield Research, Real Capital Analytics
According to
Anshul Jain, Managing Director, India, Cushman & Wakefield, “Indian real-estate has seen good traction from both domestic as well as global investors on the back of reviving economic confidence breaching previous levels. This bull run is expected to continue in the short-term with more investments being made in completed or leased corporate assets and other commercial activities such as retail and hospitality; and we expect 2016 to be one of the best years in recent past for the real estate sector.”
He further adds, “However, by the mid of next year 2017, we expect to hit a peculiar situation of non-availability of suitable projects for investments, as most of the investible properties would be committed to. Some developers may hold onto their projects in order to cash in on the advent of REITs and may only release their properties to such investment options. The slowdown may happen in residential when the markets revive. As long as market is low and stress is there, there is a need for money, thus presenting opportunity for PE players to enter, as good returns are expected.”
Estimating from the pipeline for the rest of 2016 is expected to witness the highest PE investments since 2008 through the sale of sizeable stakes in office portfolios by some of the prominent Indian developers. The cumulative value of these stakes is estimated to be between Rs 21,500 crore and Rs 24,000 crore. Owing to improving economic outlook and uptick in leasing activity for office spaces, some of the PE firms are increasing their portfolio of office spaces, possibly with an intention to launch their own REITs.
The relaxation in FDI norms in other sectors such as food processing, defense, pharmaceuticals, etc, made during the second quarter is expected to attract investments, which in turn, is likely to boost demand in the real estate sector, specifically in the industrial, logistics and warehousing assets. These are good progressive FDI policies that the government has announced. The government, however, needs to ensure effective implementation and monitoring of the announced policies in infrastructure development, land digitisation, RERA implementation, title insurance, GST, etc.
Residential assets received 44 per cent of total PE real estate investments
Residential assets continued to witness the majority share of total PE investments at 44 per cent during the first-half of 2016. Domestic investors accounted for about 80 per cent of the investments in residential assets with the remainder being made by foreign investors. While the cumulative investments include both entity and project level investments, majority of investments (75 per cent) were made by via the structured debt strategy. Domestic investors have preferred investments in residential assets as it is relatively easier to exit the investments with shorter investment cycles while allowing investment via a structured financing strategy with pre-agreed terms. Cumulative investments in residential segment increased 22.3 per cent to Rs 83.65 billion in H1 2016, over the same period of the previous year.
Investments in offices growing rapidly
The investments in office assets have grown from Rs 1,647 crore in 2014 to Rs 4,236 crore – a 157 per cent growth in the first six months of 2016. Factors such as increased foreign investments and leasing activity, strong GDP growth and economic forecasts, improved governance, government initiatives, etc, have contributed towards attracting investments. Owing to few large deals, domestic investors accounted for 63 per cent of the investments in the office assets in first-half of 2016. Foreign investors accounted for 25 per cent of the investments and the remaining 12 per cent was made by JVs of domestic and foreign investors.
Retail asset class set for revival
The retail asset class (malls) that had remained subdued for over five years is now witnessing increased investor interest. The retail asset class accounted for about 18 per cent of the total investment volume during the first-half of 2016 compared to only 2 per cent recorded during the same period in 2015. PE funds are increasingly exploring opportunities in the retail segment as a revival is expected and also because the retail assets can be listed under a REIT portfolio.
Mumbai continues to receive highest PE investments
Mumbai continued to account for the highest share in investments (36 per cent), followed by Delhi NCR accounting for 33 per cent of the investments during the first-half of 2016. Bengaluru received 11 per cent of the investments during the same period. Mumbai continued to witness the highest share of investments, owing to factors such as presence of organised real estate developers, availability of projects suitable for PE investments, higher capital values that contributes towards large deal sizes, etc.
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