By: Prameet Narula
Track2Realty Exclusive: Tapping NRI money is a wish that kept the developers driving throughout the year with the depreciation in Indian rupee. However, any wishful thought of fall in the currency would be suicidal for the sector in the year ahead as this rupee depreciation would not benefit them as much with NRIs investment as it would affect the foreign private equity (PE) funds which have been the project rider for many of the developers. Track2Realty Focus 2014 noted that most the PE funds coming into the sector with seven year lock-in period post FDI being allowed in 2005 are coming to an expiry. This is a real cause of worry and can not be compensated by NRIs buying property.
Beyond the fancy and wishful thoughts of NRI investment lies the fact that NRIs can’t be project rider for any developer. But those who have been project riders for many of them, PE funds are getting worried with the depreciation in the currency. The fall of the rupee actually wipes out returns on real estate and also makes PE exit painful. Can the sector afford to wish NRIs buying properties at the cost of its saviour in PE who are increasingly getting anxious after getting stuck with their investments and unable to raise fresh funds either?
PE funds’ patience with the Indian real estate seems to be getting over this year. When most of these exits were being planned, the currency has slipped 46 per cent to touch over Rs 60 level. It has almost wiped out foreign private equity funds’ relatively moderate returns and any exit at this level will lead to at least 25-30 per cent loss in dollar terms. Most of these offshore funds invested during the last few years when the US dollar was quoting at Rs 40-45 now find it challenging to offer good returns due to the fall of the rupee and weak underlying market.
Investments made in the sector are cumulatively estimated to be around $15 billion since foreign direct investments were allowed in the sector in 2005. Around 20 per cent of this was expected to get an exit in the past two years, but seems a distinct possibility now. Private equity firms with offshore funds are in a state of flux not only because of their stuck investments and delay in project completions, but are also concerned about not being able to raise fresh funds in the current scenario.
…to be continued
