Private equity (PE) investments in real estate continue to be strong for the second year in a row. In 2015, the sector attracted the highest investments since 2008, and if the run-rate seen in the first half of 2016 is something to go by, the investments could well surpass the record of 2015.
According to the latest report released by Confederation of Indian Industry (CII) and JLL India, private equity investments in the first half of 2016 in residential, office and retail combined stood at R11,400 crore, while in the full year of 2015, the three asset classes attracted a total of R12,000 crore of investments. In 2014, the sector attracted R8,200 crore of investments, says the report.
The type of funding also changed over the years, with debt gaining strength in the residential sector and equity gearing more towards commercial assets. This was a result of a relative slowdown in the residential sector faced over the past two-three years. Investors turned conservative and preferred construction debt, last-mile funding and receivables bundling to ensure that their investments were protected in lieu of the asset.
Meanwhile, equity flows in the commercial sector turned stronger, indicating that large investors were keen to look at equity positions again, although the right asset remained a key consideration.
“The increasing share of equity financing is a key indicator that investors are looking to become project partners and points towards their strong positive sentiments for commercial assets,” says the report. Interestingly, what has also come to fore is that after a couple of years of absolute lull, there are clear signs of latent interest in retail assets. The retail sector was an oft-neglected one, barely registering any investment activity of note. This asset class had good performing assets, albeit in limited quantity, as the sector has largely been plagued by under-performing and sub-average assets.
But now, with yields at almost 8% in office assets, there is renewed interest in retail malls. The trend has also been augmented by a number of foreign retailers entering India; for instance, H&M, Gap and Aeropostale have just started operations and Uniqlo, Massimo Dutti and Kate Spade are yet to come. As the organised retail segment is maturing, institutional investors also have a better understanding of the revenue streams, which in turn allows them to gauge a mall’s performance.