Tepid home sales, rising inventory levels and weak sentiment pulled down India’s property markets in 2015, with not much hope of a recovery soon. The sector awaits the return of investors and customers, who seem to be waiting for prices to stabilize and developers to honour project delivery schedules before they take the plunge again.
TRENDS TO WATCH
Year of fund-raising: Several private equity (PE) funds are either planning or are already on their way to raise almost $4 billion from overseas investors to invest in real estate in 2016. Among them, Edelweiss Alternative Asset Advisors Ltd, part of diversified financial services firm Edelweiss Group, is raising up to $1 billion for its first residential real estate fund. Housing Development Finance Corp. Ltd (HDFC), through an entity, is close to raising $850 million. With project cash flows still weak and bank lending not easily available, developers are securing much of their funding requirements from external pools such as PE funds.
A slow and gradual recovery: The real estate sector that suffered much pain in the past two years is moving towards a more rational regime where developers, having learnt from their mistakes, now focus on project execution and delivery. 2016 is expected to gradually move towards better home sales and see a spurt in launches in some locations. The year will also see the sector moving from an investor-driven to an end-user driven cycle. Home prices, which declined to some extent in 2015, may see further correction as customers are still delaying home-buying decisions. Prices may stabilize in some other markets.
More platform-type deals, more offshore investors to come in: With the government easing foreign direct investment (FDI) norms in the construction sector, more offshore investors are likely to invest in real estate. This will also enable smaller-sized investments. More exclusive partnership platform transactions between Indian developers and investors are also expected to happen, giving fund managers more control over investments and decision making. The relaxation of FDI norms in the midst of a prolonged slowdown in the sector is expected to bring back some cheer in the real estate sector.
Return of equity investments: After more than three years of PE funds doing primarily debt and debt-structured transactions in real estate, a few of them are again ready to infuse equity capital into projects to get better returns through long-term commitments. Housing Development Finance Corp. Ltd, through an entity, is raising an $850 million fund which will do pure equity deals. Some investors are looking to increase the equity portion in their new funds or are introducing equity, thereby taking on more risk.
Commercial office space: The commercial office sector, which was a saving grace during the slowdown, is expected to further shine in 2016. Vacancy levels have fallen and large firms, many in the e-commerce space, are taking up new space at a brisk pace. Buyouts of ready commercial space is on, and private equity funds are now even looking at investing in under-construction properties. Realty firms with office development portfolios are not only focusing on growing their business, but in some cases are also shifting focus from residential to rent-yielding office projects.
Source: PropertyatNeoDevelopers.Wordpress.Com
TRENDS TO WATCH
Year of fund-raising: Several private equity (PE) funds are either planning or are already on their way to raise almost $4 billion from overseas investors to invest in real estate in 2016. Among them, Edelweiss Alternative Asset Advisors Ltd, part of diversified financial services firm Edelweiss Group, is raising up to $1 billion for its first residential real estate fund. Housing Development Finance Corp. Ltd (HDFC), through an entity, is close to raising $850 million. With project cash flows still weak and bank lending not easily available, developers are securing much of their funding requirements from external pools such as PE funds.
A slow and gradual recovery: The real estate sector that suffered much pain in the past two years is moving towards a more rational regime where developers, having learnt from their mistakes, now focus on project execution and delivery. 2016 is expected to gradually move towards better home sales and see a spurt in launches in some locations. The year will also see the sector moving from an investor-driven to an end-user driven cycle. Home prices, which declined to some extent in 2015, may see further correction as customers are still delaying home-buying decisions. Prices may stabilize in some other markets.
More platform-type deals, more offshore investors to come in: With the government easing foreign direct investment (FDI) norms in the construction sector, more offshore investors are likely to invest in real estate. This will also enable smaller-sized investments. More exclusive partnership platform transactions between Indian developers and investors are also expected to happen, giving fund managers more control over investments and decision making. The relaxation of FDI norms in the midst of a prolonged slowdown in the sector is expected to bring back some cheer in the real estate sector.
Return of equity investments: After more than three years of PE funds doing primarily debt and debt-structured transactions in real estate, a few of them are again ready to infuse equity capital into projects to get better returns through long-term commitments. Housing Development Finance Corp. Ltd, through an entity, is raising an $850 million fund which will do pure equity deals. Some investors are looking to increase the equity portion in their new funds or are introducing equity, thereby taking on more risk.
Commercial office space: The commercial office sector, which was a saving grace during the slowdown, is expected to further shine in 2016. Vacancy levels have fallen and large firms, many in the e-commerce space, are taking up new space at a brisk pace. Buyouts of ready commercial space is on, and private equity funds are now even looking at investing in under-construction properties. Realty firms with office development portfolios are not only focusing on growing their business, but in some cases are also shifting focus from residential to rent-yielding office projects.
Source: PropertyatNeoDevelopers.Wordpress.Com
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