BANGALORE: Global private equity funds more than doubled their investment in India's real estate sector in the quarter to March as they foresee an improvement in economy leading to stable long-term yields, according to a report by brokerage Cushman & Wakefield, PE funds invested Rs 2,800 crore in the country's commercial and residential real estate during the period, a 145% jump over the year-ago quarter, the report said.
"This is the highest quarterly private equity investment since Q2 of 2009 by private equity funds in the realty sector, driven by huge investment in commercial real estate and steady fund raising by developers in the residential asset class," it said.
Sanjay Dutt, executive managing director for South Asia at Cushman & Wakefield, said investor interest is expected to grow in office as well as residential property this year. "Improving economic conditions and stable long-term yields are expected to result in increased investor interest for commercial office assets in 2014," Dutt said. "Considering the attractive returns in the residential sector, along with the high funding needs of developers, steady investments in the residential sector are anticipated."
The report said average deal size increased 35% to Rs 156 crore per transaction during the quarter. The construction development sector saw foreign direct investment (FDI) inflows worth Rs 1,430 crore in the quarter, which is the highest level of investment since the third quarter of 2009. The report said global fund houses such as Xander Group, Peninsula Brookfield, Stan-Chart RE and Blackstone committed big bucks to the Indian real estate sector. While Blackstone and Standard Chartered together invested in Rs 1,150 crore in Vrindavan Tech Village, a special economic zone being developed by Embassy Group on the outskirts of Bangalore, Mantri Developers raised Rs 250 crore from Peninsula Brookfield for a residential project in Bangalore and Oberoi Realty bought a land parcel in Mumbai from Tata Steel for Rs 1,155 crore.
"Most investors, especially those who are growth investors, don't see this sector as a very attractive investment destination currently. This may be a great opportunity for those who can price the fundamentals, work the real estate, have a longer-term view, a stomach for volatility and patient capital," said Siddharth Yog, founder and managing partner at Xander Group Inc.
Jasmeet Chhabra, principal at Red Fort Capital, said the last three years did not see much FDI in the real estate sector, but things are improving now. "It has become more lucrative in terms of valuation, demand-supply mismatch continues to hold. Once we see a stable government, the deal momentum will pick up," he said.
While the commercial office sector saw investments worth Rs 1,440 crore during the quarter, the residential sector got Rs 1,070 crore of inflows, contributing about 51% and 38%, respectively, to overall investments mentioned in the report. "The capital would help fund much needed real estate investment to create and hold facilities to house the economic activities," said Jonathan Yap, assistant group CEO for overseas funds and India at Ascendas.