The flow of private equity (PE) funds into the realty sector declined 15 per cent in the first three quarters this year, compared with the corresponding period last year, owing to regulatory and investment concerns, said a report by international consultancy Cushman and Wakefield.
However, at 23, the total number of PE transactions so far this year is just marginally lower than the number of such deals last year. Till September, PE firms invested Rs 3,500 crore and about 60 per cent of this investment came in the quarter ended March, which saw Rs 2,100 crore flowing into the sector. In the quarter ended June, deals worth Rs 950 crore were recorded. This dropped to Rs 440 crore in the quarter ended September.
“The fall in the number of deals was mainly due to concerns on the government policy front, coupled with an uncertain investment scenario, valuation and the continued focus on exits for some vintage funds,” said Sanjay Dutt, executive managing director (South Asia), Cushman & Wakefield.
The consultancy, however, added recent policy initiatives and opportunities in key markets such as the National Capital Region, Mumbai, Pune, Bangalore and Chennai would turn things around in the coming quarter and help make up for the shortfall. For the PE investment into the sector so far this year, Mumbai was the most preferred destination, followed by Bangalore and the National Capital Region, said Dutt.
Currently, the sector is going through a slump, owing to high interest rates, subdued lending by banks, muted demand and oversupply in the commercial segment.
Of the PE investment in the first three quarters, the residential segment accounted for the most (Rs 2,060 crore). The share of deals in this segment rose nine per cent compared to the year-ago period.
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The office segment also continued to attract investment, recording a higher number of deals compared to the year-ago period. However, the investment in this segment declined 12 per cent, owing to a lower average deal size.
For leased commercial assets, PE investment stood at Rs 610 crore, considerably lower than Rs 1,500 crore in the year-ago period. The report said income-yielding office space continued to attract investors to this segment.
Most deals this year were through special purpose vehicles (SPVs). Last year, investments were witnessed at both entity and SPV levels.
The share of Mumbai, the National Capital Region and Bangalore, which have accounted for the majority of investments over the years, fell from 84 per cent in the first three quarters of 2011 to 78 per cent in the same period this year.