Amidst all the worries about a property bubble in the US, the Indian realty sector continues to witness a deluge of funds, not only from private equity investors but also from builders seeking a toehold in this market.
Twenty-one private equity deals worth $1,292 million were struck in the realty sector in the six months between April and September 2007. This is a substantial increase over eight deals worth $282 million inked in the same period last year, according to Real Estate Intelligence – a research and consulting firm.
From investment banking majors Morgan Stanley and Blackstone to UAE-based Khaleej Finance and Investment and Ras Al-Khaimah Investment Authority, Indian realty companies have been attracting a wide range of institutional investors. Institutional investors expect $5 billion to be pumped into Indian real estate over the next three years, says the recent FICCI-Ernst & Young India Real Estate Report 2007.
Direct-stake route
The size and number of such deals apart, the route now being taken by institutional investors to get an exposure to projects also reflects their bullish view on Indian realty. Investments which were initially routed through Special Purpose Vehicles (SPVs) are now beginning to come in through the direct portfolio route.
Portfolio level participation is a high-risk high-return proposition as investors take concentrated exposures to a few projects. Prominent private equity names such as ICICI Ventures, HDFC, IL&FS Investment Managers, Kotak, Morgan Stanley, and Citigroup had initially invested in real estate projects through SPVs which would, in turn, re-direct funds into 5-6 projects. In recent times, some of these investors have taken direct stakes in specific projects.
"Investors who were initially evaluating this market were using the SPV route. Now, with increased confidence and a more focused approach to the realty market, the portfolio route may be the way to go," says Mr Anurag Mathur, Deputy Managing Director, Cushman & Wakefield India.
DLF recently offloaded a 49 per cent stake in seven of its residential projects across India to global financial major Merrill Lynch. According to Cushman & Wakefield, investments at the portfolio level are now the highest and account for 40 per cent of investments in Indian real estate.
Global builders
In another trend, entity-level partnerships have also emerged, with instances such as Morgan Stanley acquiring a stake in Mantri Developers, a Bangalore-based realty company. But it is not only institutional investors who are flocking to Indian realty, global builders are here too. Alliances announced by UAE-based Nakheel and Emaar, Amsterdam's Plaza Centers NV and Israel's Alony Hetz with Indian players indicate that overseas builders perceive a huge opportunity in this market.
"Their entry would help in improving quality and meeting timelines (on projects). Thanks to the deep pockets of the international players, the scale of projects will also increase," predicts Mr Ramesh Nair, Managing Director, Jones Lang LaSalle Meghraj. As he puts it, "2005 was the year of the real estate investment tourists to India. 2006 was the year when they sought partners who have access to land. 2007 has been the year of searching for partners with good execution skills."
Twenty-one private equity deals worth $1,292 million were struck in the realty sector in the six months between April and September 2007. This is a substantial increase over eight deals worth $282 million inked in the same period last year, according to Real Estate Intelligence – a research and consulting firm.
From investment banking majors Morgan Stanley and Blackstone to UAE-based Khaleej Finance and Investment and Ras Al-Khaimah Investment Authority, Indian realty companies have been attracting a wide range of institutional investors. Institutional investors expect $5 billion to be pumped into Indian real estate over the next three years, says the recent FICCI-Ernst & Young India Real Estate Report 2007.
Direct-stake route
The size and number of such deals apart, the route now being taken by institutional investors to get an exposure to projects also reflects their bullish view on Indian realty. Investments which were initially routed through Special Purpose Vehicles (SPVs) are now beginning to come in through the direct portfolio route.
Portfolio level participation is a high-risk high-return proposition as investors take concentrated exposures to a few projects. Prominent private equity names such as ICICI Ventures, HDFC, IL&FS Investment Managers, Kotak, Morgan Stanley, and Citigroup had initially invested in real estate projects through SPVs which would, in turn, re-direct funds into 5-6 projects. In recent times, some of these investors have taken direct stakes in specific projects.
"Investors who were initially evaluating this market were using the SPV route. Now, with increased confidence and a more focused approach to the realty market, the portfolio route may be the way to go," says Mr Anurag Mathur, Deputy Managing Director, Cushman & Wakefield India.
DLF recently offloaded a 49 per cent stake in seven of its residential projects across India to global financial major Merrill Lynch. According to Cushman & Wakefield, investments at the portfolio level are now the highest and account for 40 per cent of investments in Indian real estate.
Global builders
In another trend, entity-level partnerships have also emerged, with instances such as Morgan Stanley acquiring a stake in Mantri Developers, a Bangalore-based realty company. But it is not only institutional investors who are flocking to Indian realty, global builders are here too. Alliances announced by UAE-based Nakheel and Emaar, Amsterdam's Plaza Centers NV and Israel's Alony Hetz with Indian players indicate that overseas builders perceive a huge opportunity in this market.
"Their entry would help in improving quality and meeting timelines (on projects). Thanks to the deep pockets of the international players, the scale of projects will also increase," predicts Mr Ramesh Nair, Managing Director, Jones Lang LaSalle Meghraj. As he puts it, "2005 was the year of the real estate investment tourists to India. 2006 was the year when they sought partners who have access to land. 2007 has been the year of searching for partners with good execution skills."
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