Private equity investments have started pouring into Indian real estate after a countrywide decline in realty prices over last six months led to rational valuations. PE investments into real estate in the last six months crossed Rs 15,000 crore, according to data compiled in two reports by Citigroup and Enam.
In the last six months US private equity firm Lehman Brothers invested Rs 2,735 crore in two real estate projects and it is in talks with Unitech for another $525 million deal for its projects in Mumbai. Merrill Lynch has invested over Rs 1,680 crore in DLF's special purpose vehicle for township projects in Delhi.
However, not all real estate developers are getting PE funding. Money is flowing to those who have credibility and acumen to execute projects at ease. "Private equity funds are investing in selected real estate developers irrespective of the slow down. The window is open for long term players, having good track records," said Gagan Banga, CEO of India Bulls, which attracted over Rs 2270 crore PE investments in its various real estate projects over the last six to eight months.
Several other players, including Yatra Capital and Kotak Securities, are raising funds for realty and infrastructure. Yatra is raising close to $450 million while Kotak is planning a $1 billion real estate fund.
"We are providing more rational valuation to the developers," said a senior partner working with a US-based PE fund investing in the Indian realty market.
Sourav Goswami, MD, Walton Street Capital (India), one of the largest private equity funds from the US said, “Though the number of active PE investors have decreased (as compared to previous year), the comfort level to do business with Indian realty players has increased. Now we are quite excited about the environment and are seeing more realistic valuations.”
What has stopped now are investors looking for a quick buck. Industry sources say that many such US-based investors would come to invest in Indian realty without doing much research.
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In fact, the number of PE investors investing in realty was as high as 600 at one point of time. However, PE investors with long term vision are still making a bee line with money bags to invest in quality projects.
Their numbers might have shrunk as compared to last year, but the existing PE investors are pumping in more money into India as returns in other markets such as the US and Europe does not look as bright as India.
"Developers strapped for cash, curtailing flexibility in raising further funding. This results in a slower pace of land acquisition and aggregation as available funds diverted for completion of projects on hand," said Enam research analysts in a report on Indian real estate sector.