Year 2016 is proving to be a bumper one for real estate and is expected to record the highest level of private equity investment in the sector since 2008. Based on the current pace of investments, Indian real estate is estimated to close the year with an inflow of Rs 43,600 crore through PE transactions.
More than half of this total – over Rs 24,500 crore – is likely to be invested in the second half of 2016, with the first half recording transactions of Rs 19,100 crore, says a report by global real estate services company Cushman & Wakefield.
Investments in office assets jumped 157% to Rs 4,236 crore in the first six months of 2016. Factors such as increased foreign investment and leasing activity, strong GDP growth and economic forecasts, improved governance and government initiatives have contributed towards attracting investments.
PE investment into real estate jumped 64% in the first half of 2016. The number of deals concluded during the period increased to 57, up 24% from a year ago. Domestic investors accounted for 63% of the investments in office assets owing to some big deals. Foreign investors brought in 25% of the investments and the remaining 12% was made by joint ventures of domestic and foreign investors, the report said.
The residential segment commanded the largest share of 44% of the total investments made during the first half, while commercial office asset class accounted for 22%. Retail gained the most, with its share of investments increasing to 18% from 2% recorded a year ago. Hospitality and mixed-use asset classes cumulatively accounted for the remainder at 17%. Domestic investors poured in 80% of the money put into residential assets, with the remainder being made by foreign investors.
Of the major property markets, Mumbai continued to attract the highest share of investments at 36%, followed by Delhi-NCR at 33% and Bengaluru at 11%.
However, by mid-2017, there could be a scenario of suitable projects drying up, with investments committed in most properties. Some developers may hold on to projects to cash in on the advent of real estate investment trusts (RIETs) and may only release their properties to such options, Jain said. The cumulative value of stakes likely to be sold by Indian developers in the rest of 2016 is estimated at between Rs 21,500 crore and Rs 24,000 crore.
With the improving economic outlook and an uptick in leasing for office spaces, some PE firms are increasing their portfolio of such assets, possibly with the intention of launching their own REITs. The relaxation in FDI norms in food processing, defence and pharmaceuticals is expected to attract investments, which, in turn, may boost demand in the real estate sector.
All of these are progressive FDI policies and effective implementation of the announced policies in infrastructure development, land digitisation, RERA (real estate regulatory authorities) implementation, title insurance and the GST will be key to further growth, the report said.