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Private equity (PE) funds are increasingly turning risk averse when it comes to the realty space. While it is still a big draw, the focus is now on completed residential projects, rather than those in the early stages.
The reasons are many — for some, older investments have yet to see the expected appreciation. Meanwhile, project delays due to pending Government approvals and land acquisition hassles are also seen as big worries .
Mr Rajeev Bairathi, Director of Investment Advisory at DTZ International Property Advisers, told Business Line that investment in commercial property is slowing due to prices remaining stagnant across the country. Money is mostly flowing into residential properties, where there is always a demand.
“Given what has happened in the 2G case, foreign investors have become extremely careful in sectors with a lot of regulation. Ready projects are being bought out more. If it is 50-60 per cent built, then one can calculate the market price more correctly,” he said.
Last year, real estate projects in Noida extension (Greater Noida) had fallen into a mess when both the Supreme Court and the Allahabad High Court struck down land acquisition by the Uttar Pradesh Government.
In the first four months of 2012, 14 real estate PE deals valued at $359 million have been reported. In the whole of last year, 22 real estate PE deals worth $946 million were concluded. This was 11 per cent of the total deals worth $8,751 million across the PE sector.
“With interest rates going down, 2012 is seeing significantly more new residential project announcements. Last year, developers were just trying to sell off existing inventories,” said Mr Harish H. V, Partner at Grant Thornton India, a consultancy which focuses on research in the PE sector.
More domestic funds
Domestic funds, such as IL&FS, Kotak and HDFC, are seen to be more active in terms of the number of deals in the works. Foreign PEs, such as Blackstone and TPG, are targeting bigger ticket buys from established players such as DLF.
Meanwhile, industry insiders say that smaller developers, such as Supertech, are having a tough time raising capital for new projects.
“The main issue in India is of project delays in real estate. A lot of investments had come in during 2005-06, which are not doing so well today, so investors have become very quality conscious over the last 12 months,” Mr Rahul Bhasin, Managing Partner at Baring PE Partners, said.
roudra.b@thehindu.co.in
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