The real estate sector recorded ₹2,800 crore in private equity investments during the first quarter of 2014, an increase of 28 per cent compared to the previous quarter and nearly 2.5 times the investment in Q1 2013, according to real estate consultancy Cushman & Wakefield.
In its report on private equity (PE) investments in real estate, it said the healthy increase was due to increasing investments in leased office assets by both foreign and domestic funds, given the potential for stable yields and attractive capital values.
Residential assets also witnessed stable investments as developers are increasingly using private equity funds to raise capital. Despite stagnant sales, the high coupon rates offered by developers is attracting capital. Fund houses have tried to mitigate some of these risks by investing through structured mezzanine deals guaranteeing fixed returns.
Sanjay Dutt, Executive Managing Director South Asia, Cushman & Wakefield, in a statement said, “A number of funds have committed funds towards investment in Indian real estate. This is expected to translate into increasing transactions in the sector, especially in income-yielding assets. With expected growth in capital requirements, we see a number of fund houses raising additional capital to invest in the sector.”
He said, “Investments in real estate by domestic companies have witnessed a significant increase during the first quarter of the year. This was due to companies acquiring land and office assets required to execute growth strategies ahead of the anticipated recovery of the economy in the second half of the year.”
The office and residential segments recorded ₹1,435 crore and ₹1,065 crore investments respectively; contributing close to 51 per cent and 38 per cent respectively to the total private equity investments in the real estate sector in India during the quarter.
One transaction in the retail segment in Bangalore was worth ₹300 crore. Investor interest in the commercial office sector has been steadily increasing, with investments doubling in Q1 2014 from the first quarter of 2013 (₹700 crore).
Healthy valuation of commercial developments, stable yields and the potential for rising capital values has led to investors actively evaluating and investing in prime office assets across the top cities.
The total number of deals in the first quarter of 2014 was recorded at 18, one deal lower than the previous quarter, thus indicating an increase in average deal size by nearly 35 per cent to ₹156 crore.
Bangalore topped with investments of ₹1,905 crore, an increase of 45 per cent compared to the previous quarter. The transaction volume in Mumbai was up 22 per cent over the previous quarter at ₹470 crore. NCR and Pune registered investments of ₹345 crore and ₹80 crore respectively.