October 2012
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PE players fund residential realty deals

Realty players who are hard pressed on liquidity, and have been turning to the private equity (PE) players for funding, may end up benefitting customers.
Industry experts say that while recent deals have been happening more in the residential real estate sector, PE players are investing in projects for shorter duration and with better cash flows.

So, while dev-elopers may like to hold on to the price, the PE investor may wish to exit even at slightly lower returns in stipulated time.

“PE players are very cautious while investing in real estate and prefer shorter investment cycles. They are investing only in projects with guaranteed cash flows and all approvals in place,” said Avinash Gupta, head, financial advisory, Deloitte India.

According to a report by Jones Lang Lasalle India, of the total PE investment in the real estate sector in the first half of 2012, 50% was invested in residential real estate. This, in 2011, was 24% and only 17% in 2007.

Industry experts say many PE players who had invested in 2007-08 boom are unable to exit.

Most of the exits that have happened in the past two years have been secondary exits where either another PE player or real estate developer has bought back the stake.

In the past two years, PE players have also stopped taking risks and are sticking to metros rather than venturing into smaller cities.

While many realty players have been turning to PE players and offering better returns, up to 30% annual in some cases, they deny possible price cuts.

“Despite inflation and cash crunch, we have started to witness good sales. So, in the next year, there could be a price rise by around 15%,” said a Mumbai based realtor who had bought a PE’s stake in a project.

Source: Hindustan Times

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