It was amongst the most sought-after of destinations for equity investors before the global recession took its toll. After a lull for almost two years, the interest is reviving and reviving fast. According to industry estimates, a clutch of realty players are expected to raise in excess of $1 billion through the equity route within the end of the ongoing financial year.
Leading the pack is Embassy Builders who are preparing to raise around '2,200 crore through the public route followed by Century Builders who are targeting a funding of '750 crore. Brigade Group, Mantri Group, Shriram Properties are targeting '500 crore each, while a clutch of builders are looking at '200 crore apiece taking the total close to '5,000 crore. This sum is besides the '1,200 crore raised during the past month by Prestige Developers.
Said Anuj Puri, chairman & country head, Jones Lang LaSalle India: “With the return of confidence in the sector, Indian real estate players are now once again looking at private equity funding. Private equity investors, on their part, are definitely interested in investing in India’s real estate sector. They expect returns of 20-25 per cent, post tax. These expectations are almost the same as what they were before the downturn — however, the structure has changed, as private equity funds are now focusing more on capital protection. In other words, they seek lower risk even if that means slightly lower returns.”
According to industry analysts, the proportion is heavily skewed towards residential. This is attributed to the residential sector being correctly seen as a self-liquidating asset class, while commercial and retail real estate have exit-related concerns due to unavailability of REIT/REMF vehicles in India.
What is more interesting to note that marquee equity investors — TPG, Temasek, J P Morgan, and Baring India — are lining up for these investments. Some new private equity funds have recently entered the Indian real estate arena — among them Aditya Birla and ASK. “All in all, I can say with confidence that private equity investments into India are increasing. In the first half of 2010 alone, India Inc saw over 150 major deals — and, significantly, a little over 10 per cent of these were in relation to the real estate sector,” Puri added.
J C Sharma, MD, Sobha Developers, while recently sharing the quarterly performace said: “It is now clear that the economy is growing at over 8.5 per cent growth rate which has a direct impact on the real estate industry. Inventories are getting absorbed and new projects are being launched. Easy availability of loans and a favorable lending rate are further augmenting demand in this sector.”
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While the equity route is clawing back at a fast clip, the real estate industry still depends heavily on bank debt, NBFC funding and end-user advances. This is because bank debt is a cheaper option, and also because it offers flexible tenures. Moreover, it is easily available domestically. NBFC funding is also available at cheaper rates and can be repaid early. This makes it more flexible. Finally, end-user advances represent interest-free finance.
And as Puri sums it up: “After all, what matters most when the chips are down is returns on investment.”