MUMBAI: Indian real estate is now becoming way more attractive to investors — both foreign and domestic — than ever before, thanks to changes in regulatory framework. The global capital flow into Indian real estate in 2016 stood at about $5.7 billion. Though the historic high of 2007, in terms of total PE inflows, was not breached, last year proved to be the second best year so far.
This year has also started with a bang as real estate companies and projects attracted 19 investments totaling an announced value of $3.41 billion in the first quarter ended March. The value of investments in the March quarter was up 2.7 times from the year-ago period, which had seen investments worth $1.25 billion across 18 transactions, showed data from Venture Intelligence.
“Indian real estate has attracted around $32 billion in private equity so far since 2005…Despite Brexit and uncertainty around the new US president’s outsourcing and visa-related policies, private equity activity looks healthy in 2017 too, thanks to a strengthening and modernizing economy and the growing reputation of India as an attractive investment destination,” said Ramesh Nair, CEO and Country Head, JLL India.
The commercial segment, led by GIC’s $2.14 million investment in DLF’s rental arm, attracted an all-time high investment worth $2.6 billion across five transactions during the March quarter. Venture Intelligence data assumes the proposed transaction between DLF and GIC, which has been disclosed to the stock exchanges, goes through.
“While the mega deal between GIC and DLF's promoters does skew the numbers in a big way during the first quarter of 2017, the spike in investor interest in the commercial segment is for real, given the enhanced activity of other investors like Blackstone and others as well,” said Arun Natarajan, founder of Venture Intelligence.
Global capital flows into Indian real estate are set to increase further. Rise in consolidation activity apart from transparency and possible listings of Real Estate Investment Trusts (REITs) in 2017 are some of the important developments expected to boost foreign and domestic investor participation.
While the commercial segment, with 76%, dominated the investments value pie, the residential projects continued to attract most number of investments attracting 12 investments in the first quarter. Residential projects attracted 63% of the volume pie worth $690 million, Venture Intelligence said.
The western region, dominated by Mumbai, attracted eight investments during the quarter, while projects in north India accounted for six deals, followed by south India with five deals.
The largest investment reported during the quarter was the GIC pact to acquire 40% stake in DLF’s rental arm DLF Cyber City Developers. The next largest deal was Blackstone Group’s $250 million investment to buy 15% stake in the office holding company of K Raheja Corp.
During the quarter, private equity real estate (PERE) investors obtained exits from five real estate investments fetching $119 million. The exit volume was down 62% compared to the same period last year that had witnessed 13 exit transactions worth $390 million.
India’s tier-I cities have moved up to the 36th rank in JLL’s 2016 Global Real Estate Transparency Index — a bi-annual index — on the back of improvements in structural reforms and a more liberal foreign direct investment (FDI) regime. Increase in transparency results in higher investment in such real estate markets.