Pvt equity in realty to grow: Deutsche Bank

There are significant risks inherent in the Indian real estate capital market, which, though presently small, has managed to achieve a remarkable growth momentum, especially in the private equity and debt markets, said a Deutsche Bank research report.

While private debt in the form of bank lending to commercial real estate has been fuelling growth, both private equity and private debt markets are also set to grow significantly in the coming years, it added.

Enumerating the risks presently inherent in the sector, the report highlights liquidity, regulatory, overall market transparency, property market transparency and macro-economic risks as the five major risks, which are likely to continue for some more time to come.

The report also cites difficulty in foreign investment flowing into the sector following regulatory constraints. For example, foreign investors require permission from the Reserve Bank of India (RBI) for property ownership.

Similarly, for capital repatriation, investors need to apply for approval from the RBI while FDI is limited to a small set of opportunities such as townships.

Transparency is another aspect on which the Indian real estate sector ranks very low with Transparency International rating India at 88 out of 150 countries with regard to the perceived corruption level.

Pointing to the need for more professional due diligence and valuation institutions, the report said, "although market transparency has obviously improved, it is still hard to get reliable and consistent information on the Indian property market."