Analysis: Private equity firms eye bonanza in India's residential real estate space

Unitech

15/02/2019 06:30

* PE firms bet big on residential real estate market
    * Attractive valuations seen luring PE investments
    * Budget announcements, rate cut to aid sector   

    By Swati Bhat
    MUMBAI, Feb 15 (Reuters) - India's cash-starved residential
real estate market is set to get a boost from foreign and
domestic private equity firms, which are lining up big bets
worth hundreds of millions of dollars for the sector.     
    The domestic residential real estate space has been in a rut
for years with failed and delayed projects putting buyers off.
Developers more recently have been hit by a credit squeeze as
banks struggle with bad debts and a crunch in the shadow banking
sector.  
    Private equity firms are now swooping in to buy assets at
attractive valuations, say industry insiders, as regulatory
changes and a more dovish monetary policy outlook bode well for
the sector.  
    "With major impetus being given to affordable housing ... PE
investors are sensing a big opportunity in this segment," said
Anuj Puri, chairman at Anarock, a real estate consultancy firm.
    "The expected 8-10 percent annual return in the affordable
segment of residential real estate is attracting not just Indian
investors but also foreign entities from the U.S., Singapore and
Canada."
    Blackstone Group  BX.N , one of the largest owners of
commercial real estate in India, this month agreed to buy a
majority stake in Aadhar Housing Finance - an affordable housing
project, and committed 8 billion rupees ($112 million) of
additional equity to the asset.
    Piramal Enterprises and Ivanhoe Cambridge, the real estate
arm of Canadian fund Caisse de dépôt et placement du Québec
(CDPQ), last week announced a $70.15 million investment in
Palava - a project of Lodha Group on the outskirts of India's
financial hub, Mumbai.
    Several domestic real estate funds, including HDFC Property
Fund and Kotak Realty Fund, are also scouting opportunities in
the real estate space, say industry sources aware of the talks. 
    And one industry source said that Canadian asset management
firm Brookfield Asset Management  BAMa.TO  is exploring roughly
half a dozen residential real estate investments and it aims to
nearly double its bets in the space to over $1 billion, from
$450 million in the coming year.
    The Abu Dhabi Investment Authority (ADIA), along with Hines
Investments is also poised to announce an investment in the
space, a source involved in the deal said.
    Brookfield declined to comment, HDFC Property, Kotak Realty,
ADIA and Hines were not immediately available for comment.
    
    
    TIMING IT RIGHT
    Rising bad debts and real estate project failures have made
banks cautious on lending to developers, leading to a slowdown
in the property market that relies heavily on borrowing for both
home building and buying.
    Developers in the country were typically averse to private
equity as it is more expensive funding compared to debt they
could raise from banks, or non-bank finance companies (NBFCs).
    However, with funding from NBFCs drying up in the aftermath
of a string of defaults at lender IL&FS, developers are being
forced to explore debt and equity funding from private equity.  
    "For the PE players the valuations are probably a lot more
attractive today than they were four to five years ago," said
Anshul Jain, managing director at Cushman and Wakefield India.
    "From a risk perspective too, risk is slightly lower as some
green-shoots are visible in the segment. PE can see that pricing
and sale pricing is at an all-time low, so valuations are at an
all-time low, so it's a good time for them to enter."
    The government has also announced several incentives for the
real estate sector in the interim budget earlier this month.
    "This is a very positive budget from a real estate point of
view," said Samir Jasuja, managing director of PropEquity, an
online real estate data and analytics platform.
    The government announced a total tax rebate for individuals
with annual income of up to 0.5 million rupees, and offered some
tax incentives that would benefit both property developers and
potential homebuyers. 
    These measures, along with the rate cut by the central bank
last week, are expected to give an added push to the segment.

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India PE Deals in Residential Real Estate    https://tmsnrt.rs/2UVxsZm
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 (Reporting by Swati Bhat; Editing by Euan Rocha and Stephen
Coates)
 ((swati.bhat@thomsonreuters.com; twitter.com/swatibhat22;
+91-22-61807353; Reuters Messaging:
swati.bhat.thomsonreuters.com@reuters.net))