2015, a game-changer for the real estate sector?

Private Equity (PE) investments in the real estate sector are expected to see a revival, with increase in deal sizes.

“We believe so; the PE investment community has learned from the past and has improved, thus the possibility of them focusing on higher returns at the cost of risk again is unlikely,” said Akshit Shah, AVP (Capital Markets Research India), JLL India.

“If the Centre, which has generated a lot of hope, works on the right path and delivers what it promised, the industry will have patience and move positively,” it added.

Period of revival Acknowledging the development, Sanjay Dutt, Managing Director (India), Cushman & Wakefield, said: “The year 2015 appears to be heralding a revival of interests of PE investors. Both domestic as well as foreign players have thrown in their hat and are betting big on the real estate story of India.

“There has also been a return of some blue chip investors, who had withdrawn a few years back, re-entering the Indian real estate market with some direct investments.”

In its report, Cushman & Wakefield said PE investments in real estate reached $2.8 billion (₹18,300 crore) during the first nine months (January-September) of calendar year 2015, the highest since 2008.

This is an increase of 84 per cent over the corresponding period last year, signifying the growing confidence of PE investors in the real estate sector. The total number of deals in the same period was recorded at 61, as against 52 in the corresponding period last year.

Furthermore, the average deal size has also increased during the first three quarters of 2015 – ₹300 crore ($47 million) as against an average deal size of ₹190 crore ($30 million) during the same period last year.

Change in approach According to Anuj Puri, Chairman and Country Head, JLL India: “There has been a clear increase in focus among investors regarding where they want to invest their funds in. During 2007-08, investors left no stone unturned to participate in India’s economy and real estate growth story, and invested across all possible asset classes.”

Puri added, “In the same period, 66 per cent of funds were diversified. The share of such funds has reduced to negligible levels post 2014. In contrast, residential-focused funds have increased to 85 per cent from the then measly figure of 14 per cent.

“These two trends show that the investment approach of investors has changed from weighing every asset class on the opportunity it is presented, to becoming residential-focused, as this asset class has given maximum returns over the years.”