ICRA in a report has said that real estate developers in India will see a healthy growth on the back of international investor tie-ups worth $2 billion.
After reeling under slowdown, the real estate sector is now in for some good news. ICRA in a report has said that real estate developers in India will see a healthy growth on the back of international investor tie-ups worth $2 billion.
Shubham Jain, vice-president, ICRA Ratings, said: “The stress in the industry has made available ample investment opportunities in the sector at attractive rates. With over $2 billion of capital commitment expected under various platforms, the leading developers would be able to acquire new projects thus ensuring a steady launch pipeline over the medium term. Moreover, the equity nature of such partnerships would reduce the burden of providing any committed exit to partners,”
Real estate developers could benefit by using this capital to invest in various projects. “The investment is typically routed through the project special purpose vehicle (SPV), with the costs and profits to be shared by the partners in a pre-determined manner as per their respective economic interests. The investor is associated with the project since the start, and is provided an exit through the ultimate monetisation of the project. The interim profits generated from the projects are, sometimes, invested in acquiring interest in new projects thus lowering the incremental equity contribution from the partners as well as opening up a more tax efficient way of channelising profits, ” the Icra report said.
Delay in launching the projects has locked up developers capital, thus affecting the returns on the capital employed. International investors interest in the real estate market is driven by a shift from the land-banking model to risk-reduced project development. Among the first to do so was Godrej Properties Limited (GPL), which launched a $200 million investment platform in partnership with Dutch pension fund asset manager APG Asset Management NV in 2012, following it with an additional $275 million platform with the same investor in March 2016.
Some notable transactions
So how will it affect the sales in the real estate market? International investors are preferring large and reputed builders, which has supported the sales of large developers as consumer also go for projects from large and reputed player.
“By partnering with well established and experienced developers, having a demonstrated track record of execution as well as delivery of projects, the private equity investors are able to participate in the domestic real estate sector while reducing the exposure to execution as well as counterparty risk,” Jain added.