Research released this month revealed a significant jump in the amount of investment from private equity (PE) firms being ploughed into India's real estate markets. Venture Intelligence noted that USD 2.68 billion (GBP 1.72 billion) worth of property investments were made by PE organisations in India over the course of 2011, representing a 69 per cent rise over the amount transacted by such companies in 2010. With PE firms showing a marked increase in interest in the sector, could this mean more of the same for property investments in 2012?
National director of capital transactions at the Indian unit of Knight Frank Amit Goenka explained to Bloomberg that many developers in the country are seeking PE investment, because funding from banks has become harder to access. As financial institutions are expected to remain cautious in their lending over 2012, this situation appears to be one that is unlikely to change in the near future.
However, agent and media manager at Propertyshowrooms Terry Hobbs is not convinced the same level of investment experienced in 2011 will be sustained over the next 12 months. "I think we'll see investment level off in 2012, India will continue to attract equity firms because of its rapid growth and its potential, but I think the slowdown in exits will worry some investors and could help cool the market," he stated. Mr Hobbs went on to note there is still the potential for some large property deals to take place this year, though.
According to the real estate expert, Prestige Constructions is in talks with global private equity majors over plans to buy out a special economic zone - the Cessna Business Park, which spans 4.5 million sq ft. The deal is thought to be worth around Rs 1,800 crore (GBP 231.34 million). However, a spokesman from Prestige told Business Standard earlier this month that the firm has not yet decided whether it will sell the property.
Investors seeking the best returns from property in India may want to turn their attention to residential developments, rather than commercial schemes, Knight Frank India noted last year. Samantak Das, national head of research and advisory services at the company's Indian base, explained investors are likely to see a stronger performance from housing than from offices or retail assets. "Residential properties definitely give higher returns as, in some of the projects, bookings start even before the groundbreaking happens, which is not the case in the commercial space," he asserted.
Meanwhile, Jones Lang LaSalle recently conducted a survey among US-based banks, the results of which indicate an increasing appetite for Indian property investments among corporate real estate (CRE) executives in the financial services industry. According to the firm's findings, assets in south Asia - primarily India - and those in the north of the continent, namely China, will "present the banking sector with the most attractive growth opportunities by 2020". This may see some of the major financial players adjusting their investment strategies accordingly. Iain Mackenzie, head of Jones Lang LaSalle's banking industry group in the Asia Pacific, commented: "A geographic rebalancing is taking place. Banking and finance companies are simultaneously controlling costs, especially in mature markets, and expanding in developing countries with bright growth prospects and intensifying competition."
The company's recent Global CRE Survey 2011 found a drive among such professionals to deliver "direct cost savings" from real estate portfolios, with 39 per cent of those questioned anticipating growth from these bundles of property assets over the next three years. North Asia was highlighted as one of the regions where the performance of real estate assets is likely to improve significantly. In addition, 78 per cent of respondents stated growth will be the "biggest influencer of CRE strategy in Asia" between 2012 and 2015.
- Thursday 26 January 2012