PE, debt investments in realty jumped 12% in 2017
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
PE and debt investments grew to $4.18 billion