MUMBAI: Private equity investments in Indian real estate in 2016 touched their highest level in nine years at $5.97 billion or Rs 39,900 crore, registering a 26% on-year rise, showed a Cushman & Wakefield report.
The number of deals closed during the year also rose 5% to 119 transactions, while the average deal size, increased to Rs 340 crore from Rs 280 crore, signaling increased confidence amongst investors to make larger investments into the Indian real estate sector, the report added.
Residential assets remained the most preferred asset class as over 52% or $3.1 billion of the total private equity real estate investments was witnessed in the asset class during the year. Inflows into the sector garnered a 5% increase from that of last year.
Within residential investments, Mumbai was the most preferred location and accounted for 34% of the share, followed by Delhi NCR and Bengaluru accounting for 26% and 20% of the share, respectively. Domestic funds were most active investors in residential assets and accounted for almost 80% of the total investments.
Investments in commercial office assets were noted at $850 million, lower than that of last year as a few large deals for office portfolios initiated in 2016 are still in active discussion and likely to close this year.
Majority of the deals, accounting for 61% were witnessed in Mumbai, followed by Bengaluru’s share of 18% share and Hyderabad’s 9% share.
“The recent efforts by the government to regulate the sector have been viewed favourably by investors who are now looking at the long term potential of the Indian market. Moreover, the commercial office sector has been witnessing sustained high demand and investors are enthused by the opportunity in this space, led by impending REITs,” said Anshul Jain, Managing Director, India Cushman & Wakefield. “Despite global economic concerns, lower GDP growth projection due to demonetization, and slower revenue growth forecasted in the IT-BPM sector, the office sector is seeing stable growth with adequate pre-commitments in key growth markets such as Bengaluru and Hyderabad.”
The year 2016 was one of the best years for the organized retail real estate sector, with the sector attracting $1.07 billion of private equity investments. Private equity inflows into malls rose more than seven-fold in 2016 from 2015 levels on account of rising interest from institutional investors and funds that are looking to invest in top-grade leased malls with low vacancy levels, the report said.
About 35% of the investments in retail assets made during the year were concentrated in Mumbai, resulting from two large transactions. Besides Mumbai, investors pumped in money in Delhi-NCR, Coimbatore and Pune. Relaxed FDI norms, positive economic outlook and rising disposable income are attracting retailers to India, albeit with caution.
“Capitalizing on the higher consumer spending expected, investors are looking for well-performing malls that are professionally run with high conversion rates. Anticipating a revival in consumer spending owing to stability in growth of the Indian economy, not only are developers focusing on completing their existing projects, but also repositioning their existing malls as complete entertainment centres, hoping to attract shoppers across all ages. Over the next few years, such malls would witness yields improving and rental values inching up, thereby improving returns for investors,” Jain added.
Attracting 33% of the total investments, Mumbai property market retained its top position in private equity real estate investments with inflows of about $1.94 billion. In Mumbai, the residential segment’s share accounted for almost 55%, with inflows in office assets accounting for 27% share. In the residential segment, almost the entire quantum of was at the project level, especially in the western suburbs of the city.
Delhi-NCR follows Mumbai in terms of total inflows of $1.5 billion during 2016. The residential segment attracted nearly $820 million with Ghaziabad, Noida, Greater Noida accounting for 35% of the residential inflows during the year, the report added.
Credits ET Realty