For the quarter ended March 2014, nearly USD 800 million was invested into India's real estate sector. This translates to almost Rs 48 billion having been injected into the sector through the private equity route over the past few months. This couldn't have happened at a more opportune timefor a sector faced with a liquidity crunch, high land acquisition costs, and stringent due diligence from the banking sector-which continues to perceive real estate as a high-risk domain in India. It is this selective attitude towards lending to particular assets and markets, which has also provided opportunities to non-bank lenders such as pension funds and insurance companies to begin to consider funding India's realty industry.

One of the first foreign pension funds to directly invest in an Indian company happened to be the Canada Pension Plan Investment Board (CPPIB) and Caisse de depot et placement du Quebec (CDPQ) in partnership with Oman's State General Reserve Fund (SGRF). The entity invested ~Rs 20 billion (approximately Rs 10 billion in phase I, and the remaining amount to be funded within a period of 12-18 months) in Larsen & Toubro's (L&T) infrastructure development arm, L&T Infrastructure Development Projects (L&T IDPL), during the first quarter of 2014.

Other key investment trends observed during the quarter were land transactions, investments in built-up commercial assets, and the sale of non-core assets by business entities. More than 60% of the realty investments observed during the quarter under review were seen to be the sale of land parcels by corporate entities seeking to maximize returns, primarily in the Mumbai Metropolitan Region (MMR), to realty developers for housing development projects. Some of the most significant cases in this category involved the sale of a 25-acre land parcel owned by Tata Steel on Dattapada Road, Borivali (East), Mumbai, to the Oberoi Group for approximately USD 187 million for a luxury residential project.

Other similar land sales in the MMR included the town planning agency, City and Industrial Development Corporation of Maharashtra (CIDCO), selling off three of its land parcels in Navi Mumbai to local developers for residential as well as commercial development. While the CIDCO plot at Sector 23, Khargar, was bought by the Bhagwati Group for about USD 24 million to be developed as a housing property, two more plots at Ulwe's Sector 19 were sold to Shagun Enterprises and Varun Enterprises for nearly USD 7 million and USD 6 million, respectively. Yet another land deal saw Ardent Properties., a 100% subsidiary of realty firm, Tata Housing Development Company Limited, buying a 7-acre plot at Thane for nearly USD 36 million from KEC International for the development of a premium housing project. Other such land sales were also observed in Bangalore, Pune, Ahmedabad, and the Delhi National Capital Region during Q1 2014. It is interesting to note that these are all corporate deals, which goes to show that an increasing number of firms are now open to monetizing their defunct real estate assets for the right valuation.

Industrial assets (such as IT SEZs) remained sought after due to comparatively better yields over residential assets, stable returns and strong occupier demand. The first quarter of 2014 saw quite a few investments in built-up commercial assets. The most significant was that of US-based industrial engine maker, Cummins, buying its 700,000 sq. ft. India office campus at Balewadi, Pune, from Panchshil Realty for nearly USD 125 million.

The quarter also witnessed developers seeking equity investment partners with several Indian developers generating cash by disposing off their non-core assets and/or forming joint venture partnerships with investors to develop realty projects. A case in point being realty major, DLF, divesting off nearly 25-26 of its hospitality property portfolio-under its Amanbagh brand-to the Adrian Zecha and Peak Hotels joint venture.

In conclusion, more platform deals and equity stake acquisitions are expected to be seen in the forthcoming quarters. Although India is not yet a significant player in the regional real estate investment market, going forward, we expect the entry of real estate investment trusts (REITs) to provide alternative funding channels to the sector, and trigger strong growth in its investment volumes. A forward looking legislation on REITs will be a key enabler for capital markets in the country, and shall be the single-most consequential reform witnessed in the sector in recent times.

(By Anshuman Magazine, CMD, CBRE South Asia)