Private equity investments in real estate dropped sharply in 2012-13 with a reduction in both the value and number of deals. Data from Venture Intelligence, a research service focussed on private equity and mergers and acquisitions, show that the realty sector announced $1.7 billion of investments from 41 deals in 2012-13 compared with $3.2 billion from 73 deals in 2011-12.
Private-equity investors have been wary of making new commitments, as they are yet to make profits on their older deals, say market experts. “Most investors who entered the market around 2007 burnt their fingers,” said Ravindra Pai, Managing Director of Bangalore-based Century Real Estate Holdings. He, however, said today, private-equity investment in real estate is primarily in the form of securitised debt and not equity.
Chinnu Senthilkumar, co-founder and a shareholder at private-equity firm Azure Capital Advisors, said that the market saw higher levels of speculation in the last five years, while expectations on returns were also unrealistic.
Private-equity investors have been wary of making new commitments, as they are yet to make profits on their older deals, say market experts. “Most investors who entered the market around 2007 burnt their fingers,” said Ravindra Pai, Managing Director of Bangalore-based Century Real Estate Holdings. He, however, said today, private-equity investment in real estate is primarily in the form of securitised debt and not equity.
Chinnu Senthilkumar, co-founder and a shareholder at private-equity firm Azure Capital Advisors, said that the market saw higher levels of speculation in the last five years, while expectations on returns were also unrealistic.
Growth story intact
But Shobhit Agarwal, Managing Director – Capital Markets, Jones Lang LaSalle India, said the current level of deals is healthy and it could rise as more investments are confirmed. “Given the current economic conditions, both globally and domestically, these figures are definitely indicative of the continued strength of the India real estate story,” he said.
Even while investments shrank, the year, however, saw the largest single private equity deal in realty since 2008. Blackstone Group, a US private-equity firm, together with Embassy Group, a real estate developer, agreed to buyout 51 per cent stake in an IT park near Bangalore for $356 million.
But Shobhit Agarwal, Managing Director – Capital Markets, Jones Lang LaSalle India, said the current level of deals is healthy and it could rise as more investments are confirmed. “Given the current economic conditions, both globally and domestically, these figures are definitely indicative of the continued strength of the India real estate story,” he said.
Even while investments shrank, the year, however, saw the largest single private equity deal in realty since 2008. Blackstone Group, a US private-equity firm, together with Embassy Group, a real estate developer, agreed to buyout 51 per cent stake in an IT park near Bangalore for $356 million.
Why PE funds
Affluent investors have been investing in real estate private-equity funds, after stepping out of equity investments. They offer a simpler alternative for individual investors who may want to participate in the sector’s growth without having to deal with the legal and procedural formalities of buying property.
The funds also offer cash-strapped developers a source of funding. “Small developers have limited access to financing, especially for pre-project expenses,” says Pai.
“When such funds engage with a developer, they monitor the project effectively for quality, schedule, cost and fund management,” says Senthilkumar. He said the involvement of private fund is likely to bring in improved efficiency to end customers.
Affluent investors have been investing in real estate private-equity funds, after stepping out of equity investments. They offer a simpler alternative for individual investors who may want to participate in the sector’s growth without having to deal with the legal and procedural formalities of buying property.
The funds also offer cash-strapped developers a source of funding. “Small developers have limited access to financing, especially for pre-project expenses,” says Pai.
“When such funds engage with a developer, they monitor the project effectively for quality, schedule, cost and fund management,” says Senthilkumar. He said the involvement of private fund is likely to bring in improved efficiency to end customers.
Future hopeful
Though there has been concern over slower sales in metros such as Mumbai, J.C. Sharma, Vice-Chairman and Managing Director of Sobha Developers, expressed optimism about the prospects of the sector as a whole.
“There is a lot of unmet demand in metros as well as smaller cities and a lot of people who have the capability to buy real estate are still holding back,” he said pointing to Sobha’s positive experiences in Bangalore, Thrissur and Gurgaon.
“Real estate investments in the last 15 years have provided good returns,” said Senthilkumar and felt it is safe to extrapolate similar returns for the next 15 years, especially with growth in tier-2 and tier-3 cities.
Though there has been concern over slower sales in metros such as Mumbai, J.C. Sharma, Vice-Chairman and Managing Director of Sobha Developers, expressed optimism about the prospects of the sector as a whole.
“There is a lot of unmet demand in metros as well as smaller cities and a lot of people who have the capability to buy real estate are still holding back,” he said pointing to Sobha’s positive experiences in Bangalore, Thrissur and Gurgaon.
“Real estate investments in the last 15 years have provided good returns,” said Senthilkumar and felt it is safe to extrapolate similar returns for the next 15 years, especially with growth in tier-2 and tier-3 cities.
Meera Siva
BL Research Bureau
http://www.thehindubusinessline.com/industry-and-economy/real-estate/wary-private-equities-pare-investments-in-real-estate/article4753519.ece
