PE investment in RE increases 22 pc y-o-y, in Jan-Sept 2016: Report


According to a Cushman & Wakefield report, investor confidence in India’s real estate sector has clearly improved, as indicated by a 22 per cent increase y-o-y in January-September 2016, in private equity investment.

Private equity investment in the real estate sector, has grown 22 per cent during January-September this year, to Rs 28,300 crores, from Rs 23,200 crores a year ago, reflecting improved confidence among investors to make larger investments, says a Cushman & Wakefield report.

According to the report, private equity inflow increased to Rs 28,300 crores during the period, out of which nearly Rs 9,200 crores were recorded during the third quarter (July-September) of 2016. While the number of deals closed during the third quarter moderately declined by 3 per cent quarter-on-quarter (q-o-q), to 32 per cent, the total investments increased by 1.2 per cent, reflecting increased confidence among investors to make larger investments.

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The average deal size, therefore, increased from Rs 275 crores in Q2 2016 to Rs 287 crores in the third quarter of 2016. ‘Owing to the continued interest in pre-leased office assets, the investments in the commercial office assets have already surpassed the total investment received during the calendar year 2015,’ the report said. The y-o-y change in investment in office assets, has recorded an increase by over 50 per cent, as registered in the third quarter. ‘Moreover with a few large deals for office portfolios in active discussion and deal closure stages, the fourth quarter (October-December 2016) is expected to record the highest annual investments made in the asset class’, the report stated.

Residential assets witnessed over 73 per cent or Rs 6,675 crores of the total investment during July-September 2016. ‘Despite the largest share in total volumes, investments saw a moderate 3 per cent decline when compared to those received in the same period in 2015’, according to the report. Within residential investments:

  • Mumbai was the most preferred location that accounted for 63 per cent of the share.
  • Delhi-NCR accounted for 18 per cent of the share.
  • Bengaluru accounted for 15 per cent of the share.

‘Domestic funds were the most active investors in residential assets and accounted for 82 per cent of the total investments made in the asset class. The cumulative investments in the residential assets increased 9 per cent q-o-q, in the third quarter of 2016,’ the report noted. Anticipating a revival in the sector and given the potential to list under the Real Estate Investment Trust (REIT), retail assets are attracting large investments from various funds. Therefore, the year-to-date investments in retail assets during 2016, increased almost threefold to Rs 3,800 crores, over Rs 1,020 crores noted during the same period of 2015.

Anshul Jain, managing director, India, Cushman & Wakefield, explained that “There has been a steady shift in ownership of assets, especially office, from being privately held to institutionally held, moving in line with the global trends. This will further assist the Indian market to attract more and more investments in the sector. It also opens doors to the successful implementation of REITs in India.”

He further added that given how investible assets are fewer, one may see a moderate slowdown in investment in office assets in 2017, albeit end of 2016 is still looking strong and promising. “Even while residential asset classes continued to attract the highest volume, it will continue to be dogged with challenges of end-user purchases, which has led to a decline in the number of launches in the segment. Retail, which saw an increase in interest from investors, should also be viewed with some caution as the investments have been made in fully-leased successfully operating assets,” he pointed out. While this trend could see a few more commitments in the next 12-24 months ahead, this will not be the rising trends or be a salvage situation for ailing retail properties, he added.

 

 

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