Private equity (PE) investments in real estate fell 15% in value terms in the first three quarters of the calendar year as funds found it difficult to raise money and investment pipelines dried up. Economic uncertainty and the inability of existing funds to show returns to investors created obstacles in future fund raising.
The hurdles of fund raising are felt more acutely in offshore funds. Post the Lehman crisis in 2008, barring Red Fort Capital, no significant fund raising happened from an overseas PE fund for India centric real estate investments. Red Fort Capital earlier this year, announced it has raised $500 million for investing in the Indian residential market.
?The offshore fund raising is slow. Of the around $20 billion invested in the real estate markets in India, only less than 20% has been redeemed,? said Nikhil Bhatia, co-head (capital markets) at real estate consultancy firm CBRE India. ?Unless the PE funds show good returns and redemption, further capital raising will be an uphill task. Limited partners or investors in PE funds are spurning lower returns, country and currency risks, and taxation issues, to focus on their home markets like the US, which provide ?good returns, Bhatia added.
However, among foreign funds, JP Morgan is believed to be raising $500 million for an offshore realty fund since January 2012. In domestic funds, Kotak Realty Fund is understood to be raising a $300 million offshore fund since April and private equity arm of Housing Development Finance Corporation (HDFC) is also in the market raising an offshore fund, sources said.
Policy paralysis from the government during the better part of the year and a host of other issues like approval delays for projects in Mumbai, and execution delays from developers are also adding to their woes. ?There were a lot of concerns on the government policy front coupled with an uncertain investment scenario, valuation and continued focus on exits for some vintage funds,? said Sanjay Dutt, executive managing director (South Asia), Cushman & Wakefield.
The private equity investments in the first three quarters is recorded at R3,500 crore, about 15% lower than the same period last year, said a Cushman & Wakefield report. The total number of PE transactions till date in 2012 is 23, marginally lower compared with the same period last year, it added.
While the PE funds also agree that liquidity is a concern, there is no dearth of deals in the market.
?There is no shortage of deals. Since there is paucity of funds in market, there might not be enough deals happening. But we have some deals in the pipeline and they will close soon,? said V Hari Krishna, director (investments), Kotak Realty Fund.
Kotak had earlier told FE that it plans to invest between R400 and R500 crore in three to four residential projects in 2012-2013 fiscal. ?There is some back ending but the deals will happen by March 2013,? said Krishna.
Similarly, another domestic PE fund ASK also said that funds that have shown consistent performance continue to attract funds as well as deals. ?The requirement of capital for real estate in India is huge,? said Amit Bhagat, CEO and MD, ASK Investment Property Advisors.
Last quarter, ASK closed two deals of around R100 crore each in projects of Shriram Properties and Mantri Developers in Bangalore and Bhagat told FE the fund is close to finalising one more R100-crore deal in the current quarter. He did not divulge more details.
