Private equity investments in real estate declined 29% in 2017

Private equity investments in residential real estate declined almost 29 per cent in 2017 to Rs 15,600 crore as against 2016, mainly due to subdued market sentiment and implementation of various reforms that resulted in delay of home launches, a recent study said.

According to a report by property consultant Cushman & Wakefield, PE investments in the realty sector grew 17 per cent in 2017 to Rs 42,800 crore as against Rs 36,590 crore last year.

The investment into the real estate sector in 2017 has risen a whopping 52 per cent since 2014 aided by better ease of doing business, relaxation in FDI norms, introduction of GST, and defining norms for REITs listing, the report said.

Out of the total, the residential segment attracted highest investments of Rs 15,600 crore, while Rs 13,200 crore was invested in the office space.

"The office sector witnessed a massive jump in investments to Rs 13,200 crore from Rs 4,000 crore in 2016, led by stake sale in office portfolio of a leading developer.

Residential segment, on the other hand, witnessed a decline from Rs 21,870 crore in 2016 to Rs 15,600 crore in 2017," the report said.

The jump in inflows during 2017 is mainly on the back of a three-fold rise in investment in office segment, signalling heightened interest of institutional investors in pre-leased office assets.

During the year, the market witnessed large deals with an average transaction size rising almost 34 per cent to Rs 4,300 crore.

The deal book was dominated by foreign funds, accounting for 60 per cent of the investments, who chased big-ticket deals in residential, office and industrial assets, the report stated.

"Institutional investors are foreseeing strong demand for office space by occupiers. Investors will continue to plough in funds into ready commercial office assets, which yield stable returns and can be listed under REITs. Like 2017, we expect foreign investors to dominate investment volume in 2018, with office and industrial sectors in focus," Cushman & Wakefield country head and managing director Anshul Jain said.

According to the report, the momentum in investment volume has slowed as investors are adopting a cautious stance at a time when the residential market is subdued.

"Currently, developers are launching fewer new projects, as they straddle with an environment of high inventory, weak demand and are focused on ensuring new projects are in compliance with regulatory changes like Real Estate Regulatory Authority (RERA) and GST," it said.

The industrial segment witnessed the third-highest private equity inflows this year at Rs 6,540 crore.

Jain further said that with GST in place and the recently accorded infrastructure status for logistics, the industrial and warehousing sector has become an attractive proposition for investors.

"The sector will give ample opportunities for developing modern and efficient warehouse management, catering to the rising demand for space driven by the e-commerce segment," he added.

The report further said granting of infrastructure status to this segment will enable access to cheaper finance, thereby aiding the development of warehousing facilities and logistics parks.

According to the report, Mumbai witnessed the highest investments during the year with almost Rs 15,000 crore worth funds being pumped into the market, a massive 41 per cent increase over the previous year.

Delhi recorded investments of Rs 4,380 crore, while Bengaluru, Pune, Chennai and Hyderabad reported PE flow of Rs 5170 crore, Rs 1450 crore, Rs 2970 crore, Rs 940 crore, respectively.