Asian Real Estate Funds Allocation Rises, But India Deployment Uncertain
India may potentially benefit from the increased allocation of funds to the Asian real estate sector by global investors. According to data from New York-based Private Equity Real Estate magazine, despite a 33% decrease in the total amount raised by private equity real estate funds between January and November 2008 (from $57 billion to $15.9 billion), the allocation towards Asian markets has risen to 28% from 19%.
Increased Funds for Asia, But Challenges Remain for India
- The available funds for investment in Asia have marginally increased from $15.9 billion last year to $16.2 billion.
- However, dealmakers note that this does not guarantee immediate deployment of these funds in India, citing uncorrected property prices and weak demand.
Geographical Allocation Shifts
As per the collected data:
- Asia and the rest of the world (28%) have surpassed the Americas (25%), Global (24%), and Europe (23%) in terms of geographical allocation by investors for all new real estate funds closed in 2008.
India and China: Top Contenders for Asia-Focused Funds
- Sandeep Singh, Cushman & Wakefield Director (Capital Markets): "Funds with short-term horizons may not invest in India due to downside risks. Property prices have fallen but not enough, and demand remains weak."
- India and China are currently the top two contenders for Asia-focused funds.
Indian Real Estate Sector Challenges
- After a five-year bull run ending in 2007, the Indian real estate sector now faces a tough market with flagging sales and unavailable debt.
- Several developers have been seeking private equity funds, but deals have been scarce over the last six months.
Investment Climate and Future Prospects
- Ambar Maheshwari, DTZ Investment Advisory Director: "Many foreign and domestic funds are waiting, but none are willing to invest immediately. All funds have adopted a wait-and-watch approach as the global economic situation worsens."
- PE players are seeking higher returns and are willing to wait for valuations to come down, with some exploring distressed assets.
- Fundraising has become a significant challenge for private equity players, with limited partners seeking more time due to the global economic turmoil.
- This has delayed the final closure of major funds, including the twelve billion dollar Morgan Stanley Real Estate fund. Fund closures significantly slowed after August, with only a few closures in September and October.