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West Asian funds flooding high-end Indian real estate

businesspaper Updated: Aug 31, 2016 07:10 IST

MUMBAI: At a recent sales event of premium apartments built by Piramal Realty in Mumbai exclusively for high net-worth individuals where flats were priced in ₹10-12 crore range at least 15% of the homes were snapped up by billionaires from United Arab Emirates (UAE).

So far this year, about ₹2,000 crore worth of sales in high-end residential apartments have been concluded, half of which were in Mumbai and southern India, with the buyers again mostly from West Asia.

The trends throw up an interesting question – while it is known that wealth in region has eroded with the fall in oil prices, how is it that funds from that region are moving to India? And Mumbai specifically? It may also highlight a revival in real estate with the return of high net-worth individuals, who had been moving away from the sector as an asset class.

The rise in Mumbai property sales is being attributed to overseas investments by sovereign funds looking at the city as an easier option than London, which lost out after the Brexit vote. Funds from Saudi Arabia, UAE, Kuwait have corpuses in excess of $200 billion (₹13.4 lakh crore).

“Things are improving in real estate for projects with a good track record,” said Anand Piramal, executive director of the Piramal Group and executive director of Piramal Realty, a real estate development arm of the group. Piramal was referring to the situation of Indian real estate that continues to be plagued by unfinished projects and court cases filed by dissatisfied home buyers and a general reluctance of banks to lend to the sector due to high defaults.

A selective exposure seems to be the theme these days for ultra high net-worth individuals, the so-called category of wealthy persons from large business families and by promoters of start-ups who have amassed wealth by selling their businesses. The sentiment is also reflected in the way real estate stocks have performed — the BSE Realty index has risen 48% in six months compared to the Sensex which rose 20%.

While the enthusiasm has not yet prodded banks into lending as yet, alternate sources such as private equity and long term funds are making their way back to India, for the first time since the 2008 sub-prime crisis in the US.

“Most of them are cautiously evaluating Indian projects. Developers and the land parcel are now being measured with the priority being on developers,” Piramal told HT in an interview. “International investors are looking at returns of 25%, which is lower than what was expected during the boom days,” he added.

A China-led boom in commodities had buoyed business sentiment across the world in 2008, inflating real estate prices and pulling in private equity firms and real estate funds for returns more than 35%.

First Published: Aug 31, 2016 07:10 IST

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