Revamped capital flows attractive for capital flows
The big-ticket transition signalled through the Real Estate Regulatory Act (RERA), currency demonetisation and Goods and Services Tax is set to spell more opportunities for institutional capital in India’s real estate sector. Private equity players, who have so far preferred the structured-debt route to invest in Indian property market, are likely to find the market even more transparent and attractive.
“From a historic high seen in 2009, when the share of private equity inflows into residential real estate peaked to 60% of the overall pie, it has gradually reduced to 10% in 2016.This 10% figure is same as the investment split seen in 2006, which was the first time equity interest tracked into the residential asset class. Private equity investment was entirely focused on the commercial asset class in the initial few years,” said Anuj Puri, chairman, JLL India.
“While the real estate business has currently taken a step back due to these, it will set a very strong foundation for long-term growth. Equity investments at such times can work extremely well for long term investors,” Puri said.
“Going forward, the nature of private equity participation in real estate will have to change significantly. Gone are the days of evaluating security values based on projected capital rates and cash flows in order to take secured debt positions.Taking these debt positions is no more risk free and returns are also diminishing as developers continue to shy away from high cost debt,” said Rubi Arya, vice-chairman, Milestone Capital Advisors.