PE, debt in­vest­ments in realty jumped 12% in 2017

HT Estates - - FRONT PAGE - Mad­hurima Nandy mad­hurima.n@livemint.com

Yes, this al­ways mat­ters for the res­i­den­tial real es­tate sec­tor. Cur­rently, a first-time home­buy­er­can­claimanad­di­tion­al­tax de­duc­tion of up to INR 50,000 per fi­nan­cial yearun­der­sec­tion80EE of the In­come Tax Act, pro­vided cer­tain con­di­tions are ful­filled. Tax ex­emp­tion should be in­creased so as to in­cen­tivize first-time home buy­ers.

Re­duc­tion in GST rates

BENGALURU: Pri­vate eq­uity and debt in­vest­ments in In­dia’s real es­tate sec­tor jumped12% in 2017, led by global in­vestors such as GIC Pte Ltd, Canada Pen­sion Plan In­vest­ment Board (CPPIB) and The Xan­der Group Inc.

How­ever, debt trans­ac­tions, the main­stay of res­i­den­tial projects, de­clined as cau­tious in­vestorsstayed­awayfro­mover-lever­aged de­vel­op­ers.

With de­mand for cap­i­tal high in 2017 as project cash flows re­mained, 2018 may fi­nally see long-term, eq­ui­ty­cap­i­tal into res­i­den­tial projects with­outwhichit will be tough for realty firms to sus­tain op­er­a­tions in the postReal Es­tate (Reg­u­la­tion and De­vel­op­ment) Act regime.

Pri­vate eq­uity and­debt­in­vest­ments in real es­tate grew to $4.18 bil­lion across 79 trans­ac­tions in 2017, com­pared to $3.73 bil­lion across138dealsin2016, ac­cord­ing to News Corp.’s VCCEdge.

Of th­ese, 31 were eq­uity deals ($2.85 bil­lion) while the re­main­ing 48 ($1.33 bil­lion) were debt trans­ac­tions, as against 25 ($1.46 bil­lion) and 113 ($2.26 bil­lion) in eq­uity and debt re­spec­tively in 2016.

Last year’s sin­gle largest trans­ac­tion saw pro­mot­ers of In­dia’s biggest­de­vel­op­erDLFLtd sell­ing 33.34% inits rental arm­for around Rs8,900 crore to GIC, Sin­ga­pore’s sovereign wealth fund. Xan­der, which in­vested around Rs4,250 crore in 2017 in of­fice, re­tail and debt fi­nanc­ing, plans to grow th­ese and ex­pand into a few in­ter­est­ing op­er­at­ing plat­forms. “For the last 12 months, we­have­beenad­dress­ing the In­dia res­i­den­tial op­por­tu­nity throughour­debt­plat­formwhere we be­lieve the risks/re­turns are more­ap­pro­pri­ate­lypriced, given the cur­rent­mar­ket­si­t­u­a­tio­nand the var­i­ous reg­u­la­tory changes. As the dust settles and eq­uity in­vest­ment­be­comes­more­ap­pro­pri­ately priced for the as­so­ci­ated risks, wewil­lpur­suetheres­i­den­tial op­por­tu­nity through a new op­por­tu­nity fund,” said Ro­han Sikri, se­nior part­ner, Xan­der In­vest­men­tMan­age­men­tPteLtd, the real es­tate pri­vate eq­ui­t­yarm of The Xan­der Group.

With high lever­age lev­els at de­vel­op­ers, the sec­tor is now seek­ing eq­uity, and pri­vate eq­uity funds will start in­tro­duc­ing eq­uity-type prod­ucts, said fund man­agers.

“Thereisa­lotof­cap­i­tal avail­able to­day but it’s only for se­lect de­vel­op­ers and the dis­tinc­tion be­tween­goodand­bad­de­vel­op­ers is more pro­nounced. But funds are real­iz­ing that they need to take more risks and do eq­uity deals be­cause that’s the need of the hour,” said Am­bar Ma­hesh­wari, chief ex­ec­u­tive, pri­vate eq­uity, In­di­a­b­ulls As­setMan­age­ment Co. Ltd.

The­ware­housin­gand­l­o­gis­tics sec­tor at­tracted morethan$1 bil­lion last year, emerg­ing as the newhotspot­forin­vestors. CPPIB madea$500 mil­lion com­mit­ment toIn­doS­paceCore, ajointven­ture with Ever­stone Group. As­cen­das-Singbridge Group bought six ware­houses from lo­gis­tics firm Ar­shiya for Rs534 crore. LO­GOS Group and As­setz Prop­erty Group­part­nered­tose­tu­pal­o­gis­tics and­ware­hous­ing­plat­formto in­vest around $400 mil­lion.

“There is an op­por­tu­nity for eq­uity deals for the right projects and de­vel­op­ers, and those are in steady, an­nu­ity in­comegen­er­at­ing space, like of­fice and ware­hous­ing, and most large deals have been there,” said San­jay Dutt, chief ex­ec­u­tive of­fi­cer, op­er­a­tions and pri­vate funds, As­cen­das-Singbridge In­dia.

Dutt said the firm al­most dou­bled fund al­lo­ca­tion for In­dia in 2017 andthat­con­tin­ues this year as well. Both com­mer­cial of­fice and the new ware­hous­ing ver­ti­cal would be key fo­cus ar­eas for the firm this year.

The­mo­men­tu­mof­block­buster deals in 2017 will gain speed this year, said a re­search note by prop­erty ad­vi­sory JLL. With short-term dis­rup­tions such as de­mon­eti­sa­tion and the goods and ser­vices tax (GST) be­hind, 2018 may­betheyear­forin­vestors to con­sider a strate­gic en­try into In­dia.

“Struc­tured debt funds and NBFCshaveser­vice­dres­i­den­tial projects, with re­fi­nanc­ing needs be­ing at the fore­front with the need to stay afloat. This will con­tinue,” said ShashankJain, part­ner, trans­ac­tion ser­vices, PwC In­dia.

THE MO­MEN­TUM OF BLOCK­BUSTER DEALS IN 2017 WILL GAIN SPEED THIS YEAR

MINT/PHOTO

PE and debt in­vest­ments grew to $4.18 bil­lion

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