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Private equity firm IL&FS Investment Managers Ltd, an arm of Infrastructure Leasing & Financial Services Ltd. (IL&FS), said it received $578 million (Rs2,277 crore) of commitments for investing in real estate projects as demand surges in the world’s fastest-growing economy after China. The Mumbai-based company, which had the first closure on its real estate fund on Wednesday, plans to raise up to $750 million mainly from global institutions over the next three months, said Shahzaad Dalal, vice-chairman, in a phone interview.
IL&FS will invest mainly in projects for housing, offices, hotels and complexes for information technology companies, with a small amount in stocks of unlisted real estate companies, Dalal said. Investors in the fund include institutions, pension funds, endowments and foundations, he said.
IL&FS joins JPMorgan Chase & Co., Housing Development & Finance Corp., ICICI Venture Funds Management and Sun-Apollo India Real Estate Fund Llc. in raising funds to invest in Indian property. The fund, with a maturity of between eight and 10 years, aims to offer annualized returns of about 25%, Dalal said.CommentQuote0Flag
- With the changing time real estate and infrastructure is now in priority list of PE where as in past IT & ITeS, banking & financial services (BFS) and pharma & healthcare were the favorite one. This is good sign for real estate and infrastructure.CommentQuote0Flag
- Indian real estate is on boom from more than 5 years.
I think it will remain as it is for 10-15 more years.Originally Posted by arunWith the property market sky rocketing, real estate and infrastructure has become attractive investment destination for private equity (PE) funds, beating traditional new economy heavyweights—IT & ITeS, banking & financial services (BFS) and pharma & healthcare.
For the first half of 2007, real estate and infrastructure development sector accounted for $2.2 billion investment or about one-third of all PE money flowing into India. While IT & ITeS maintained its top position in terms of the number of PE deals, real estate and infrastructure development sector became the most sought after in terms of value of actual PE investment. The total value of PE money accounted by IT & ITeS sector stood at $1.2 billion which was more than one-third of the total. Real estate sector was a distant second with $601 million worth PE deals, followed by BFS which attracted $508 million.
Some of the big deals in the real estate sector this year are Avenue Capital’s 26% stake in SKIL Infrastructure for $500 million, DE Shaw’s $400 million investment in DLF Assets, IL&FS’ $100 million in QVC Realty, Morgan Stanley Real Estate’s $150 million in Oberoi Constructions, Singapore-based GIC, George Soros and Morgan Stanley joint investment of $166 million in Anant Raj Industries and TPG-Axon Capital’s $100 million investment in DivyaSree Developers.
One of the reasons behind the growing investment in the real estate sector is the valuation of the companies engaged in the sector, which has shot up over the last two years. During 2005, when PE and VC funds started making noticeable investments in India, there was just one PE deal related to the real estate sector which involved Indiabulls. IT & ITES was number two in terms of actual PE investment even as it recorded the maximum number of PE deals. IT & ITeS emerged stronger in the last calendar year when it not only clocked the highest number of PE deals—97 or one fifth of the total—but also attracted most of the PE money—$2.9 billion or about 14.3% of the total. It was followed by pharma, healthcare & biotech which registered PE investment worth $2.5 billion and telecom which attracted $2.2 billion investment.
- PE Investments In Realty Up 17% In 2017, Dip 29% In Residential Segment
Private equity (PE) investments in residential real estate declined almost 29 per cent in 2017 to Rs 15,600 crore as against 2016, mainly due to subdued market sentiment and implementation of various reforms that resulted in delay of home launches, a recent study said. According to a report by property consultant Cushman & Wakefield, PE investments in the realty sector, however, grew 17 per cent in 2017 to Rs 42,800 crore as against Rs 36,590 crore last year.
The investment into the real estate sector in 2017 had risen a whopping 52 per cent since 2014 aided by better ease of doing business, relaxation in foreign direct investment norms, introduction of the Goods and Services Tax (GST), and defining norms for Real Estate Investment Trusts (REITs) listing, the report said.
Of the total, the residential segment attracted highest investments of Rs 15,600 crore, while Rs 13,200 crore was invested in the office space.
"The office sector witnessed a massive jump in investments to Rs 13,200 crore from Rs 4,000 crore in 2016, led by stake sale in office portfolio of a leading developer. Residential segment, on the other hand, witnessed a decline from Rs 21,870 crore in 2016 to Rs 15,600 crore in 2017," the report said.
The jump in inflows during 2017 is mainly on the back of a three-fold rise in investment in office segment, signalling heightened interest of institutional investors in pre-leased office assets. During the year, the market witnessed large deals with an average transaction size rising almost 34 per cent to Rs 4,300 crore. The deal book was dominated by foreign funds, accounting for 60 per cent of the investments which chased big-ticket deals in residential, office and industrial assets, the report stated.
"Institutional investors are foreseeing strong demand for office space by occupiers. Investors will continue to plough in funds into ready commercial office assets, which yield stable returns and can be listed under REITs. Like 2017, we expect foreign investors to dominate investment volume in 2018, with office and industrial sectors in focus," Cushman & Wakefield Country Head and Managing Director Anshul Jain said.
According to the report, the momentum in investment volume has slowed as investors are adopting a cautious stance at a time when the residential market is subdued.
"Currently, developers are launching fewer new projects, as they straddle with an environment of high inventory, weak demand and are focused on ensuring new projects are in compliance with regulatory changes like the Real Estate Regulatory Authority (RERA) and the GST," it said.
The industrial segment witnessed the third-highest private equity inflows this year at Rs 6,540 crore. Jain further said that with the GST in place and the recently accorded infrastructure status for logistics, the industrial and warehousing sector had become an attractive proposition for investors.
"The sector will give ample opportunities for developing modern and efficient warehouse management, catering to the rising demand for space driven by the e-commerce segment," he added.
The report further said granting of infrastructure status to that segment would enable access to cheaper finance, thereby aiding the development of warehousing facilities and logistics parks.
According to the report, Mumbai witnessed the highest investments during the year with almost Rs 15,000 crore worth funds being pumped into the market, a massive 41 per cent increase over the previous year. Delhi recorded investments of Rs 4,380 crore, while Bengaluru, Pune, Chennai and Hyderabad reported PE flow of Rs 5170 crore, Rs 1450 crore, Rs 2970 crore, Rs 940 crore, respectively.CommentQuote0Flag
- Affordable housing now a ‘major theme’ among PEs MUMBAI: Private equity firms’ interest towards affordable housing is on the rise and is expected to increase in the backdrop of the government’s push for this segment and housing for all.
“Affordable housing has emerged as a significant theme among PE-RE (private equity real estate) investors, especially in the second half of 2017, with both domestic investors as well as international firms placing special focus on this segment,” said Arun Natarajan, founder of research firm Venture Intelligence.
Driven by the demand and government incentives, the majority of residential project launches in 2017 were in the affordable and mid-range price segments, with the affordable segment alone accounting for around 45% of the overall residential supply. With the trend expected to continue, experts see more private investments in this space. “Despite the blurring focus on private equity players on residential in general, the affordable housing segment — one of the most-discussed topics of 2017 — is expected to attract more private equity investors in 2018,” said Anuj Puri, chairman at ANAROCK Property Consultants. “In a bid to capture the substantial market potential of this segment, many PE funds and developers will seek to upgrade their participation in it,” he said.
In the year gone by, private equity real estate firms made 67 investments with an announced value of $6.1billion in India, data from Venture Intelligence showed. Around 57% of this went into residential projects with affordable housing grabbing a significant part.
In the largest fund raising for housing so far in the country, HDFC Capital Advisors, a wholly-owned real estate investment advisory arm of HDFC Ltd, recently raised $550 million under the initial close of its second affordable housing fund called HDFC Capital Affordable Real Estate Fund-2 (HCARE-2). With this and another fund raised in 2016, it has created a $1-billion platform to invest in affordable and mid-income residential projects in the country’s top 15 cities. The joint platform, where Abu Dhabi’s sovereign wealth fund Abu Dhabi Investment Authority (ADIA) is the primary investor, is expected to commit more than $500 million by March.
Several such funds are betting on affordable housing driven by macro data points that indicate pent-up demand and government incentives.
According to estimates, the current shortfall of homes in the affordable and lower-toi -mid income categories is around 18 million, so the demand is huge — especially in larger cities. In addition to granting infrastructure status to affordable housing, the government has expanded the Pradhan Mantri Awas Yojana (PMAY) benefits to push its vision of ‘Housing for All by 2022’. The government’s decision to offer credit-linked subsidy scheme (CLSS) under the PMAY (Urban) has been helping middle-income group homebuyers significantly.
Industry insiders are hopeful that the upcoming Union Budget for 2018-19 will increase incentives for the sector by augmentation of the current schemes and relaxing eligibility criteria for the same.