The Hindu Business Line : ‘Foreign funds raise $30 b for Indian real estate investment’

According to the report, investors have also shown an appetite for investments across asset classes, with integrated townships having witnessed highest attention with 28 per cent of the private equity investments.

Our Bureau

Bangalore, Oct. 5 Foreign funds and institutions have, till date, raised approximately $30 billion to be invested in Indian real estate with an estimate of $3 billion that has been committed, according to real estate services firm Cushman & Wakefield.

The industry is progressing up the learning curve, and the spectrum of private equity transactions range from project-specific special purpose vehicles (SPVs) to entity-level investments.

Investment Vehicles

According to Cushman & Wakefield’s latest report ‘India Gaining Momentum-Indian real estate investment dynamics’, investments in the market have spread rather evenly over three broad investment vehicles.

While a majority of the investment still remained either at the portfolio and SPV-level partnership, at 40 per cent and 36 per cent respectively, the number of entity-level partnerships formed 26 per cent of the total investment in the sector.

According to Mr Anurag Mathur, Deputy Managing Director, Cushman & Wakefield India: “A majority of the transactions, until last year, were structured at an SPV level, as most investors were evaluating the markets. However, over the past few months, the private equity market has evolved drastically with many more examples of portfolio-level as well as entity-level participation both from national and international investors.”

Growing investor confidence

This healthy mix can be attributed to the growing confidence of investors in the industry. Investing in a portfolio of properties or at an entity level essentially diversifies the risk for the investor. Portfolio investments also achieve better congruence of valuations. On the flip side, however, there is always a risk of less-performing projects being grouped.

The advantage of this asset class is that it is viewed as a low-risk investment avenue due to its diversification benefits and low-entry cost with larger upside potential. Despite the speculative element, the end-user demographics facilitate more secure returns.

Vertical-specific investments

Increased number of vertical-specific investments for stand-alone products has been witnessed over the last one year, more profound in sectors such as retail and hospitality, the report says.

Hospitality, with 16 per cent, emerged as another high growth sector given the growth potential seen in the market despite the fact that investments in hospitality tend to be capital-intensive and brand-driven. A number of developers have ventured into this industry, with many alliances between developers and hotel operators for their future expansion plans.

Mr Mathur adds, “Earlier investments into such projects were largely as part of an intergraded or mixed-use product. The establishment of these verticals as stand-alone focused business lines by the Indian real estate entities indicates the growing maturity of the industry. Market participants have realised the importance of creating verticals focused on a particular asset class. This provides a professional approach to development management as the dynamics of each asset class need specialised manpower to manage the projects.”

The report says that this has been also reflected within retail development with various developers now focusing on the retail sector as a core business.

Retail development companies and dedicated retail divisions established by large developers are introducing the desired professionalism within the industry that will give a further boost to this sector which currently has a share of only 1 per cent in the number of transactions in stand-alone projects.