Private equity into Indian real estate started moderately in 2005 before peaking in 2007-08, when opportunistic investors largely dominated the market. Following the low in 2009-10, investment activity started to gain momentum at end-2013 in anticipation of the positive election outcome.
In a report on PE in Indian real estate, JLL India, describes three broad investment phases.
Phase I - Falling in the period of 2005-08, it was the discovery of opportunities across multiple asset classes in real estate despite too many worries about the risk it carries.
Phase II - Falling in the period of 2009-13, there was a bearishness across all markets in India which made investors largely sceptical.
Phase III - The third phase involved a better understanding of the Indian real estate scenario and regaining momentum that was lost during the first two phases.
From 2014, Indian real estate has witnessed PE investments worth $2.2 billion. This is even before taking into consideration platform level deals which are worth $2 billion. When we compare the quantum of activities over the last 18 months to investments between 2009 and 2013 that were worth $3.9 billion, this uptick is clearly evident.
Not only is investment activity picking up, but as PE funds mature, they become selective
Between 2005 and 2008, investments were not only seen across all real estate asset classes but investors also invested in Tier-II and Tier-III cities. As many as 30 Indian cities enjoyed investment during this phase. Post this phase, however, the selection criteria has gotten stricter and due diligence has increased – displaying a maturing of India’s real estate PE industry.
From 2014, it is largely the developers with very good track record that have managed to attract investments. At the same time, investors have restricted themselves to seven-eight cities only and a considerable portion of investment has gone into residential and office assets – showcasing a clear focus among the investors.
The report also points out that PE players are now raising funds for specific real estate asset classes like residential, unlike the earlier modus operandi of raising diversified funds.
Click here to download the report ‘Real Estate Private Equity 3.0’
