Commercial realty doing well, Investors still cautious

MUMBAI | BENGALURU: While commercial real estate continues to record healthy pick-up, investors are still approaching the segment with caution. Private equity players and other investors believe that the euphoria around current growth may also lead to certain investment mistakes as was the case in the previous cycle between 2005 and 2008.

In the past three years, about $1.6 billion have been raised through the joint venture platform with the mandate to acquire foreign direct investment (FDI)-compliant, stabilised office buildings in major metropolitan areas in India. Although fund inflows towards commercial real estate haven’t been an issue, not many Grade A income-producing office assets with good tenants are available, and therefore investors are keen on a thorough due diligence before writing the cheque.

Commercial real estate, post announcement of norms for REITs, is following the same frenzy that residential development saw post the opening up of FDI in 2005. With sub-9% cap rates at institutional level in a traditionally high interest rate market like India, the asset class trades nominally above 10-year treasury rates… a clear sign of asset bubble in the segment being inflated further with disproportionate capital chasing a very small pool of ready assets,” said Jasmeet Chhabra, Managing Partner, Cerestra Advisors, part of Religare Group.

Credits ET Realty

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