Global real estate consultancy, Cushman & Wakefield's (C&W) latest report on Private Equity investments in Real Estate (PERE) revealed that total inflows in the sector for 2014 were Rs 154.10 billion / Rs 154.1 billion (USD 2.5 billion). This was more than double the investment levels recorded in 2013 (Rs 73.60 billion / Rs 73.6 billion / USD 1.2 billion). This is also the highest level of investment since 2008 (Rs 174.40 billion / Rs 174.4 billion / USD 4 billion), indicating renewed interests among domestic and foreign investors for the Indian real estate sector. PERE investments for the fourth quarter were recorded at Rs 54.80 billion / Rs 54.8 billion (USD 860 million, a decline of 8% from the previous quarter.
The increase in investment during 2014 was due to high level of interest in leased office assets with a number of foreign investors acquiring IT parks and IT-SEZs; investment activity in under-construction projects in the residential segment also improved significantly. Leased commercial office assets with high occupancy have witnessed significant demand from investors due to the attractive yields and expected capital value appreciation. Given the liquidity issues being faced in the residential segment as developers saw subdued sales and highly restricted access to debt funding, Private Equity (PE) funds have emerged as an important source to meet funding requirements. A few fund houses have now tweaked their strategy and are collaborating directly with residential developers (to garner higher returns), whilst a few funds are also underwriting apartments in under-construction residential projects.
Sanjay Dutt, executive managing director South Asia, Cushman & Wakefield said, ''Aggressive acquisitions by foreign funds in the Indian real estate assets during 2014 is an indicator of renewed interest in the sector. With increasing capital requirements of the Indian real estate sector and in anticipation of improving macro-economic conditions, private equity funds are likely to invest even more funds in the next few years.''
PERE investments were primarily in commercial office assets, which had a 53% share in overall investment volume, followed by the residential sector at 39%. The total value of investments in the office segment in 2014 was recorded at Rs 81.10 billion / Rs 81.1 billion (USD 1.3 billion), which is more than double the investments in 2013. Attractive valuations, stable yields and significant potential for capital value appreciation as a result of increasing demand (net absorption for the top eight cities increased by 33% in 2014) have led to a number of foreign investors acquiring prime office assets across the top cities. Around USD 3.0 billion has been invested in the commercial office sector since 2011 compared to only USD 1.1 billion between 2008 and 2011.
The total value of investments in the residential segment for 2014 was recorded at Rs 60.60 billion / Rs 60.6 billion (USD 990 million), 70% increase from the quantum of investments in 2013. With growing population, improving macro-economic conditions and an expected revival in buyer sentiments due to decreasing inflation, which may result in lower interest rates for mortgages, coupled with improving employment opportunities and an expected increase in salaries from this year, the residential sector is likely to grow significantly in the future periods. Considering the large capital requirements to develop residential assets and meet existing housing shortfall, investments in this sector are expected to increase in the coming years.
The total number of deals in 2014 increased substantially to 73, compared to 40 in the previous year. Average deal size in 2014 also increased by 15% (from the previous year) to Rs 2.10 billion (USD 33 million). Mixed-use (4%), hospitality (2%) and retail (2%) assets were the other contributors to the overall investment activity in 2014.
Delhi-NCR witnessed the highest level of transaction activity in 2014 with investments of Rs 59.10 billion / 59.1 billion (USD 950 million), nearly four times the quantum of investments in 2013. Investments in Delhi-NCR were spread across commercial office (59%), residential (37%) and hospitality (4%) asset classes. Investments in Mumbai also more than doubled from the previous year and were recorded at Rs 46.80 billion / Rs 46.8 billion (USD 760 million). Investment volume in Bengaluru increased by 43% in 2014 from 2013 and was recorded at Rs 31.10 billion / Rs 31.1 (USD 510 million) whilst investments in Pune declined 34% from 2013 and were valued at Rs 9.70 billion / Rs 9.7 billion (USD 160 million).
