By: Pranay Vakil, Chairman, Knight Frank India
The PE players have expressed concern about difficulty in exits, governance issues in investee companies and certain taxes such as the Dividend Distribution Tax which are excessive and do not conform with global standards. Also, the interest of overseas Limited Partners in Indian real estate has shown decline in the recent months. The current PE activity in India has largely been by domestic investors or by way of mezzanine capital, organised as Foreign Direct Investments.
Even the extraordinarily bullish investors’ segment which had no qualms picking up real estate stock in the pre-sales stage with little more than an allotment letter protecting their interests, has become wary in recent times. They have begun registering agreements to partially insulate themselves from the inordinate delays in sales and consequently delayed completions that characterise the industry today.
Developers have been forced to borrow at over 30 per cent from HNIs and other unorganized sources to cover their interest payments from the banking fraternity. However, this can at best be seen as a source of Bridge/ Mezzanine finance and cannot be sustained over the long run.
It remains to be seen how long developers choose to hang on to inventory and prolong this deadlock. However, it seems like just a matter of time before this stalemate is broken and developers are forced to reduce prices and submit to the market forces.
