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Why are the World’s largest PE firms Investing in India’s Real Estate?

Oct 30, 2019 | 3 months ago | Read Time: 3 minutes | By iKnowledge Team
Why are the World’s largest PE firms Investing in India’s Real Estate?

If you live in Mumbai or any other big city in India for that matter, you may be seeing a lot of construction activity happening around you. Residential high-rises are coming up everywhere; vacant lands and plots are making way for luxury apartments. Elsewhere, smaller flats and more affordable houses are also rapidly being built. Open any newspaper and you’ll see full page ads of housing projects and residences, across all price ranges.

The country is in the midst of a construction boom driven by a demand in real estate. The government’s initiatives in affordable housing are only one of the reasons for this. Real estate returns are better than ever.

Data from Cushman & Wakefield showed that during the first quarter of 2018, private equity investors pumped in a record $2.6 billion into the real sector in India, a rise of 15% from a year earlier[1]. The maximum inflows were into the residential segment at $1.32 billion, the highest in 10 quarters. In the first half, the inflows were to the tune of $4.9 billion with an average deal size of $158 million[2].

The enactment of RERA (Real Estate Regulation and Development Act, 2016) has brought in more transparency in the sector while the Goods and Services Tax has brought down input costs in many sectors that are associated with the construction industry. The commercial sector is also seeing a boom as economic reforms are fuelling the need for more office space and realty owners are creating more rent-yielding assets.

According to Knight Frank, there has been a downward trend in risk perception in the sector[3]. The boom in e-commerce has seen a commensurate rise in warehousing assets (for holding and storage of inventory during transit). Apart from retail and malls, warehousing has seen significant inflows. This is a niche segment which takes lesser time to construct as compared to offices and residences.

With large cities facing a space crunch the action has moved to the suburbs or Tier 2 cities and here the retail development has speeded up. Private equity firm Blackstone recently bought a majority stake in Esplanade Mall in Bhubaneswar for Rs 250 crore and another Rs 300 crore in Pune’s Nitesh mall. Other private equity firms have been investing in projects in cities such as Surat, Mohali, Coimbatore etc. Canada Pension Plan Investment Board spent about Rs 650 crore in a land deal in Bengaluru in the first quarter.[4]

Mumbai of course continues to see the highest activity and in the first quarter the lion’s share of the inflows to the tune of nearly $1 billion came into the city projects[5]. Again, Blackstone bought stake in two office projects of Indiabulls Real Estate.

SOURCE: Quartz India (https://qz.com/india/1287393/indias-retail-real-estate-sectors-hots-up-as-pe-investors-go-mall-shopping-again/)

Indians as we know are fond of real estate and the frenetic construction activity that we are seeing is fuelled by end-user demand not only in the case of residences but also due to the mall culture that is spreading to Tier 2 and Tier 3 cities now. This means that more people are buying houses than ever before, and availability of affordable homes is creating investment opportunities. 

There has been a perceptible pick-up in bank credit to the affordable housing segment and the expectation is that this will be the segment that will drive the real estate boom, followed by retail and the office space segments.

However apart from a home you also need to invest in financial assets and protection is of the essence. A good investment idea is insurance. To know about Aegon Life’s life insurance products like term insurance and other products, visit our home page.

Citations:

[1] Cushman & Wakefield Report, April 2018, http://www.cushmanwakefield.co.in/en-gb/news/2018/05/pe-investors-pum

[2] Knight Frank report, July 2018, http://www.knightfrank.co.in/news/pe-investments-in-india-record-a-36-growth-to-rs.-59100-crores-in-2017-from-rs.-17200-crores-in-2014—knight-frank-india-012610.aspx

[3] http://www.knightfrank.co.in/news/pe-investments-in-india-record-a-36-growth-to-rs.-59100-crores-in-2017-from-rs.-17200-crores-in-2014—knight-frank-india-012610.aspx

[4] Economic Times news reports https://economictimes.indiatimes.com/markets/stocks/news/institutional-investors-bullish-on-india-realty/articleshow/64937910.cms

[5] Cushman & Wakefield http://www.cushmanwakefield.co.in/en-gb/news/2018/05/pe-investors-pum


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