There has always been a strong history of institutional investment in Indian
real estate through both mediums; direct ownership of property and pooled
investment funds. Going back a bit in history, institutional real estate
investments had dominated the sector and it was during 1990s that led to the
emergence of strategic funds that were targeted to take the benefit of falling
property prices and hefty discounts. Thus, in the beginning of 21st century,
private equity in real estate came into picture as an independent asset class
and has been experiencing a huge growth off late. And even though the real
estate sector’s domestic front looks dampened, the PE fund inflow has gained
momentum riding high on the norms flexibility government has provided over the
last couple of years. This inturn is allowing the Indian real estate sector to
maintain a good balance of funds and is acting as a messiah in this sector’s
revival days.
“Even though the
domestic demand has failed to meet the expectations of the sector,
international fund flow has ensured the upward side of the demand graph. Total
private equity investments from foreign funds in Indian real estate grew by
over 30 percent from 2014 to 2015, and in fact, this number shaped up much
better in the first half of 2015 and even better this year. DIPP’s flexibility
of norms and relaxation towards entry/exit barriers has done the trick and the
government’s decision towards allowing 100 percent FDI in construction will be
fruitful in years to come”, avers Manoj Gaur, President CREDAI-NCR & MD,
Gaursons India Ltd.
“For any foreign
investor, India is a real potential market that promises long term returns.
Speaking about the real estate sector, government has provided a strong boost
through its policy measures as well as mammoth infrastructural upgradation
plans. With such announcements, private sector and primarily, international
front will become extremely active as plans are big and will yield greater
returns in future. Tier 1 cities will have the biggest chunk out of it and even
last year itself, MMR, NCR and Bengaluru have in themselves accounted for over
70 percent of foreign PE investments”, explains Rajesh Goyal, Vice President
CREDAI-Western U.P. & MD, RG Group.
Infrastructural
developments in a country serves as the backbone for its realty sector and this
is exactly where India is standing out as a strong market. At the same time,
having a policy framework that supports and promotes ease of doing business
especially for foreign nationals play a vital role towards attracting foreign
funds. “PE funds inflow has been on a constant rise and will continue as India
promises infra development on a large scale and the government eases the ways
of doing business. Conditions of area restriction of floor area of 20,000 sq. mtrs.
and minimum capitalisation of $5 million required within six of commencement of
business had been removed and since then a lot of FDI has flown in. Another
important element that has come up and will act as a catalyst is the
implementation of Real Estate Act. Foreigners transacting in India will now
have a much secured environment to conduct business”, elucidates Deepak Kapoor,
President CREDAI-Western U.P. & Director, Gulshan Homz.
Investments made during
early 2000s and till the recession year, i.e. 2008 could not yield good
results, coupled with depreciating rupee by almost 45 percent over the last
half a dozen years had made investors largely hesitant. On the flipside though,
in the upcoming 4-5 years, Indian residential real estate is projected to
deliver almost 10 lakh units and thus there is a huge scope for inflow of
funds. “In the first quarter of 2016, private equity investments rose by almost
40 percent at Rs. 3,840 crore versus YoY Q1 2015, and here residential front
took the majority share. Even the overall funds inflow had grown by over 30
percent in the first quarter, where even the number of deals closed rose
significantly. Relaxation of FDI norms and promise of better infrastructure
along with hefty supply coming up are the real reasons behind this funds
growth”, enlightens Vikas Bhasin, MD, Saya Group. Residential real estate in
India has always been in demand due to the ever growing population. Answering
the housing needs of the public was always in the manifesto of the current
government where Housing for all by 2022 and Affordable housing has been the
key jargons. “Participation of investors in real estate through private equity
has been a result of long term visions and plans by the government. Housing for
all, Smart cities and affordable housing is keeping the interest of the
investors extremely active, as these are all long term plans that will yield
better returns. As the real estate sector move towards better policy
implementations, investors will feel much more secured. Real Estate Act is now
in place, and if industry status and single window clearance is executed in
Indian real estate, this will greatly attract more foreign investors and
multiply funds inflow”, shares Rakesh Yadav, Chairman, Antriksh India.
Speaking about how well
the PE funds market has groomed in India with a lot more still in pipeline,
Kushagr Ansal, Director of Ansal Housing concludes, “India has always been an
untapped resource which is now gaining popularity amongst the globe, riding
with strong policy measures taken by the government. Our realty sector
contributes 5-6 percent annually towards the GDP and thus, it is imperative to
keep the things active here. Over the last couple of years, funds inflow has
increased drastically especially in Tier 1 realty regions. Tier 2 and 3 cities
will gain momentum as Smart cities and AMRUT has been worked upon. We are
expecting private equity market to grow by almost 60-70 percent in the upcoming
3-4 years versus today, particularly towards residential real estate, which will
be closely followed by commercial and retail as well.”
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