Private Equity Deals Thrive in Indian Real Estate
Despite unimpressive headline numbers, private equity (PE) deals in the Indian real estate sector have reached a three-year high in the first quarter of CY 2012, according to VCCEdge, the financial research platform of VCCircle.
Q1 Deal Highlights:
- 12 deals worth $279 million in Q1 CY 2012
- Compared to 9 deals worth $432 million in Q1 CY 2011
- And 4 deals worth $97 million in Q1 CY 2010
- Still lower than the 2008 peak of 22 deals totaling $1.2 billion, preceding the global financial meltdown
Analyst Insights
Although overall PE investment values have decreased, and investors remain cautious, analysts argue this doesn't necessarily indicate a poor investment scenario in real estate.
- Shobhit Agarwal, Joint Managing Director (Capital Markets) at Jones Lang LaSalle India, notes:
“Most funding now is for last-mile project completion where most money has already been spent by developers, and they don’t need large-size funding.” Projects are 60-70% complete, with developers seeking additional equity to finish them.
Trends in PE Investments
- Last year's Q1 average deal size was skewed by two $100 million-plus investments, including one by Ascendas, reaching an average of around $50 million.
- In contrast, the average deal size for the previous two years was $20-25 million.
Impact of Fund Lifecycle
- V Hari Krishna, Director of Kotak Realty Fund, explains:
“Most funds are reaching their shelf life, and new fundraising isn't happening at the same pace. Thus, many funds have exhausted their capital, slowing down investments.”
Real Estate Remains Attractive
- Despite smaller average ticket sizes, real estate remains a top sector for PE firms.
- In Q1, it accounted for almost 10% of total PE deal volume and around 15% of the total value of PE investments, as per VCCEdge.