[ecis2016.org] The involvement of a private equity fund in a real estate project, can reveal a lot about the location and project. We look at the insights that home seekers can glean, from PE investments in a project
The activities of private equity (PE) investors are believed to be a reliable indicator of the property market’s status. By studying private equity investors’ movements, home buyers can understand the prevailing mood in the realty market.
- Before making any investment, PEs tend to perform a detailed study on the market and commit to the investment, only when they are confident of good returns.
- PE involvement in a project, generally ensures that a developer doesn’t take any wrong step or delay its completion.
Private equity investments in Indian real estate
According to Ajay Jain, executive director – investment banking and head real estate group, Centrum Capital Limited, “Although the market remains muted, in terms of sales velocity, Indian real estate is witnessing good movement from both, domestic as well as global investors, on the back of a reviving economy. Private equity investments in real estate, reached a high of Rs 3,840 crores in Q1 2016 – an increase of 40% compared to the corresponding quarter of last year, as per a Cushman & Wakefield report. Funding is steady, albeit slow and investors understand the cyclical nature of the industry. This scenario is expected to continue in the short-term period, with more investments being made in the office space and in other segments, such as retail and hospitality.”
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The fact that deals worth billions of dollars are taking place, should instil confidence in home buyers that this is a good time to enter the property market, says Shoeb Sayed, CEO, Motilal Oswal Property Advisor. “With the Real Estate Regulatory Act (RERA) being enforced, you will see more funds flowing into the market. This will help builders and constructions will proceed in full swing,” adds Sayed.
How private equity investments help the average home buyer
Analysts maintain that as long as the market is sluggish and stressful, with a burden on developers to acquire funding, PE investors have the opportunity to enter the market and expect good returns. As PE investments serve to boost the quantum of last mile funding, developers can focus on completion and delivery of existing projects. This, in turn, will ultimately benefit home buyers.
What home buyers can learn from PE investors
Preferred property markets for private equity investors
In term of the regions that received the maximum inflow of funds last year, the Mumbai Metropolitan Region (MMR) topped the list, followed by Delhi-NCR and Chennai, while Bengaluru, Pune and Hyderabad were not far behind, reveals Jain. “Private equity players are being cautious and hence, they tend to invest in these cities. Mumbai has continued to account for the highest share in investments in the first half of this year, followed by Delhi-NCR and Bengaluru. Mumbai is continuing to witness a greater chunk of investments, owing to the presence of organised real estate developers, availability of projects that are appropriate for PE investment, higher capital values which contribute towards larger deal sizes, etc.,” Jain elaborates.
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