Track2Realty: Total inflows in the real estate sector for the first quarter of 2014 were recorded at INR 2,800 crores (USD 460 million), witnessing an increase of 28% compared to the previous quarter and nearly 2.5 times the investment in Q1 2013, says Cushman & Wakefield’s report on private equity (PE) investments in real estate.
The healthy increase was due to increasing investments in leased office assets by both foreign and domestic funds given the potential of stable yields and attractive capital values in the asset class. The residential asset class has also witnessed stable investments as developers are increasingly using private equity funds to raise capital. Despite stagnant sales, the high coupon rates offered by developers are attracting capital to the asset class. Fund houses have tried to mitigate some of these risks by investing through structured mezzanine deals guaranteeing fixed returns.
Commenting on the report, Sanjay Dutt, Executive Managing Director South Asia, Cushman & Wakefield said, “A number of funds have committed funds towards investments in Indian real estate, this is expected to translate into increasing transactions in the sector, especially in income yielding assets. With expected growth in capital requirements, we see a number of fund houses raising additional capital to invest in the sector.”
Sanjay Dutt further said, “Investments in real estate by domestic companies has witnessed a significant increase during the first quarter of the year. This was due to companies acquiring land and office assets required to execute growth strategies ahead of the anticipated recovery of the economy in the second half of the year.”
The value of investments in the office and residential segments for the first quarter of 2014 was recorded at INR 1,435 crores (USD 236 million) and INR 1,065 crores (USD 175 million) respectively; contributing close to 51% and 38% respectively to the total private equity investments in real estate sector in India during the quarter. One transaction was also witnessed in the retail asset class in Bengaluru with an investment of INR 300 crores (USD 49 million).
Investor interest in the commercial office sector has been steadily increasing with investments doubling in Q1 2014 from the first quarter of 2013 (INR 700 crores/ USD 129 million); the previous quarter did not witness any investment in the asset class. Healthy valuations of the commercial developments, stable yields and potential of rising capital values has led to investors actively evaluating and investing in prime office assets across the top cities.
The residential sector due to its sheer size has been a major contributor to overall investment activity over the years. The sector has had a share of between 40-60% in overall real estate investments since 2008. With a growing population and high housing shortfall, investments in the sector are only expected to grow in the years to come.
The total number of deals in the in the first quarter of 2014 was recorded at 18, one deal lower than the previous quarter; thus indicating an increase in average deal size by nearly 35% to INR 156 crores (USD 26 million).
Bengaluru witnessed the highest level of transaction activity in the first quarter of 2014 with investments of INR 1,905 crores (USD 312 million), an increase of 45% compared to the previous quarter. Investments in Bengaluru were across commercial office (60%), residential (24%) and retail (16%) asset classes. Transaction volume in Mumbai increased by 22% over the previous quarter to INR 470 crores (USD 77 million) and was primarily in the residential sector. Transaction volume in NCR and Pune declined for the quarter and was recorded at INR 345 crores (USD 57 million) and INR 80 crores (USD 13 million) respectively.
