Private Equity in Indian Real Estate
The real estate sector in India witnessed private equity and debt investments to the tune of $4.18 billion across 79 deals in 2017, according to News Corp.’s VCCEdge. This was an increase of 12% over 2016. Another interesting trend was the growth in the number of equity deals to 31 in 2017 ($2.85 billion) with the remaining 48 as debt transactions, as compared to 2016 that saw 25 equity deals ($1.46 billion).
The numbers are encouraging as the real estate sector in India transforms into an increasingly transparent and accountable industry. The new regulatory regime, the introduction of the GST, real estate brands gaining scale, larger brands entering the segment and increased consumer activism have all cumulatively resulted in a gradual re-organization of the industry at large. The eventual outcome of these changes we hope will translate into an improvement in the trust deficit between the developer, the consumer and the investor.
RERA has been particularly relevant in this metamorphosis, as it limits collections by way of advance bookings, restricts withdrawals from the project account and makes developers focus on ‘delivery’ timelines while making planning and cashflow management a priority. The GST has further contributed to organizing the sector as real estate transactions with vendors become increasingly transparent, a space that had little visibility pre-July 2017. All of these measures have been welcomed by investors at large, with the sector having been witness to a number of deals by key global institutions such as GIC, CPPIB, Xander, etc. over the last year.
As the residential real estate sector grapples with executing the new regime, amidst a tepid sales environment, capital becomes an essential aspect for most developers. The private equity landscape, however, has been less favourable for residential real estate as funds have been more amenable to invest in commercial properties and the logistics segment. Affordable housing, owed to the Government’s increased focus, has also sparked some private equity interest. Larger players seem to continue to be the favourite and debt v/s equity seems to be a preferred mode of investment for some funds.
Private equity funds are also seen to look at distressed assets in this space owed to the changes in the insolvency code and an increasing number of highly leveraged real estate players approaching the market for restructuring. This will help stalled projects get some liquidity and buyers in those projects some relief.
The advent of institutional capital coupled by increased regulatory vigilance and digitisation, will propel real estate businesses to transact transparently, adopt best practices, enhance their delivery capabilities and will contribute to making this industry more stable and professional in its outlook.
- By, Shubika Bilkha,Business Head, The Real Estate Management Institute – REMI and Executive Board Member, The Annet Group