The real estate sector attracted R38,000 crore as private equity investments in 2016, up 62% over the previous calendar year, according to property consultant JLL, reports Priyanka Ghosh in Mumbai. Of the total, 65% of the investments were made in the form of structured debt, as has been the trend in the past couple of years. This signals fundamentals are not improving as far as on-ground sales are concerned.
This also goes against the collective aim to deleverage balance sheets, which mandates more equity funding, according to Rajeev Bairathi, ED of capital markets at Knight Frank India.
Transactions in the commercial segment were led by few big-ticket international funds backing select large, reputed companies. “Deals in the commercial segment will always be lumpy because the segment is not as fragmented as the residential piece, only large companies can build office buildings,” said Shobhit Agarwal, managing director at JLL India. This is mainly because commercial projects have a far higher gestation period before developers can start earning from them, unlike housing projects.
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About 40% overall investments during the year were made in income-generating commercial assets, Agarwal added. GIC, Blackstone and Brookfield have concluded major transactions last year. These funds, along with Macquarie, Milestone, Kotak, CPPIB and ADIA are on the lookout for more. The rush to invest in the commercial segment, including retail, has had yield or cap rates decline in the past couple of years, which means, asset values are on the rise. The current calendar year is expected to be better than 2016 for PE investments, which will once again be led by commercial buildings. At least two large deals, estimated to be almost Rs 20,000 crore, are already in the works. The Blackstone-Embassy REIT is expected to give a boost. In contrast, market analysts are pencilling in another tough year for residential companies, with people anticipating more meaningful price cuts.
IMF cuts FY17, FY18 growth 100, 40 bps on note ban effect