The Hindu Business Line : PE flows into realty at 2007 levels

The number and value of PE deals in the realty sector over the 10 months ended October 2008, has not seen any significant slowdown. According to data provided by Venture Intelligence, a research service focused on Private Equity & Venture Capital, about 75 deals valued at $7.3 billion (Rs 35,600 crore) were made in the real estate sector.

By the end of the year, the value of deals may turn to be about the same as last year. For the whole of 2007, the realty sector saw PE deals valued at $8.7 billion, a number 19 per cent higher than the deals tied up so far in 2008.

Mr Arun Natarajan, Founder and CEO, Venture Intelligence, agrees that the volume of private equity investments flowing into realty may be the same as in 2007.

“However, if one looks at the year-on-year growth, it has slowed now compared to 2007 over 2006,” he says.

Phased inflows

In the context of property price declines and shelving of projects by some developers, private equity deals of $7.3 billion this year do not paint a particularly gloomy picture.

However, the credit crunch being faced by the developer community continues to suggest that not all of the fund flows, indicated by the above deal value, may actually materialise.

According to Mr Anurag Mathur, Joint Managing Director, India, Cushman & Wakefield, the amounts stated in the deals may not have been fully deployed as yet.

“We have seen that many projects that have PE deals have not progressed, suggesting that inflow of money may not have necessarily happened,” he said.

PE investors have been cautiously investing in tranches in some projects.

Earlier momentum?

For instance, infrastructure and realty player, Indu Projects received PE funding from Credit Suisse in August. Of the $113 million specified in the original deal, $77 million was to be received by Indu in the first tranche and the rest after 90 days.

However, the challenge for the sector may be to retain PE interest from hereon, with the price correction and slowing demand now a reality in key regions over the last quarter.

Mr Vinayak Chatterjee, Chairman, Feedback Ventures, suggests that the disbursements, if any, happening now, could also be a carry over of the momentum from decisions taken 3-4 months ago. “With property prices crashing, private equity players are certainly shy of our realty markets. The deals happening now come after great due diligence.”

Higher risk perception

As private equity investors continue to evince guarded interest in the Indian market, their return expectations could well be re-aligned to suit the higher risks entailed by the current scenario. Factors such as the Internal Rate of Return (IRR) and the time frame within which PEs would want to achieve their target, may change.

According to Mr Ramesh Nair, Managing Director, Chennai region of realty consulting firm Jones Lang LaSalle Meghraj, many private equity funds have started insisting on 25 per cent-plus IRRs in the last few months. If this be given, the realty developers could find private equity funding too to be an expensive proposition.

Related Stories:
Private equity firms build up on Indian realty firms
PE funds shy away from real estate sector

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Weekly News Round-up

Aviation fuel prices cut again; fare cuts unlikely for now

Kudremukh Iron Ore unfazed by meltdown; plans new facility

Recession helps cleanse the system, say some auto component cos

Banks’ provisioning norms for realty, capital markets eased

Mumbai developer pegs sales with ‘buyback’ offer

PE flows into realty at 2007 levels

RBI allows longer export credit