Private equity players have turned wary of the Indian realty sector's below-expectation returns, and are now choosing to play safe by picking large stakes in SEZs while staying away from residential property.
The head of an advisory firm that is negotiating one such deal between a PE player and a developer in a South India-based Special Economic Zone (SEZ) told Hindustan Times, "PE funds, especially the multinational ones, now want control in their real estate investments due to the past experiences and the pressure in returns. So now these funds are opting for SEZ investments, or at best commercial realty."
In December last year, Blackstone picked up 100% stake in DLF-Ackruti joint venture project in Pune. At that time it was a novel kind of a deal as a PE fund was acquiring 100% stake in a realty project.
Now, however, many international PE funds are opting for only such deals, where they have absolute control over management decisions.
"For international PE players, the most important issue is the exit. With no access to REIT (real estate investment trust) or capital market in the current situation, investing in residential projects appears more risky for them," said the head of an international PE fund based out of Mumbai, which had picked up a substantial stake in a Information Technology park.
"Add the policy issues where an investment that is perfectly legal turns sour overnight - like it happened in Noida," and it becomes a nightmare, he said.