Improved transparency and a new regulatory regime in the real estate sector has tripled project-level investment to $3.3 billion in the past two years.
“The improved regulatory changes led to new focus on comfort and credibility among the investors. The investments mainly led by private equity (PE) remained largely to the individual project-level,” said Shobhit Agarwal, MD & CEO – Anarock Capital.
“This approach was in evidence in 2015-2018 period as well, wherein about two-third of PE investments in Indian real estate were at the project-level. Of the total $14.01 billion PE funds in real estate over the last four years, more than $4.4 billion were infused at the project-level,” he added. “Currently in Bengaluru, project-level investment is mainly driven by NRIs and NBFCs through bulk purchases. Post elections, we expect more participation from mutual funds,” said R Nagaraj, Vice-President National, CREDAI.
Ravindra Pai, Managing Director, Century Real Estate, said: “Investors in the past looked largely at project-level investments and developers with good track records. Until about last year, more than two-third of PE investments were at project-level.”
He added, With the real estate undergoing macro-economic changes, the industry has turned positive with improved transparency and India’s GDP growth rate. More investors started investing in real estate sector, especially in the commercial sector attracting entity-level investments.”
PEs eyes commercial
Project-level investments largely driven by PEs has flowed towards the commercial real estate.
Of the $3.3-billion investment flow between 2017-18, commercial office segment accounted for the maximum share with 74 per cent, followed by logistics-warehousing 17 per cent, residential four per cent, and retail five per cent.
“The new sunshine sectors of logistics and warehousing as well as retail real estate has been attracting investments,” said Agarwal.
“Recently, PE firms invariably look for high levels of corporate governance in a real estate development company prior to investing in them. A PE firm is allowed to position its capital and increase collaborative skills in the real estate marketplace when they invest in these firms,” said Pai.
According to Agarwal, “The residential sector, on the other hand, witnessed a massive decline in investment. Investors favoured investments at the project-level as this mitigated their risk exposure in an uncertain market segment.”